Microsoft tumbles over 5.0% on UBS downgrade

Microsoft (MSFT.US) shares fell more than 5.0% on Wednesday after UBS downgraded the tech giant to “neutral” from “buy” and lowered  price target to $250 from $300 as it expects worsening performance of company’s growth engine Azure.

• UBS analysts expect deteriorating growth of its flagship cloud computing platform Azure, which may be due to maturation and not only the difficult macroeconomic environment. 

• Azure revenues increased by 35% in the third quarter of 2022, the group's fiscal first quarter, which is a significant slowdown compared to 40.0% gains recorded in previous quarters as clients reduce digital infrastructure spending.

• Analyst Karl Keirstead also pointed out potential weakness of Office 365 business, which was a stable source of income in recent years as clients cut back on hiring and retrench for slower growth.

• However UBS noticed that at 24.5 times estimated 2023 free cash flow, Microsoft already has a "defensive premium".

• Microsoft is expected to publish Q2 financial results on January 24 and analysts expect an adjusted bottom line of $2.30 per share on revenues of around $53 billion.

Microsoft (MSFT.US) stock launched today's session with a bearish price gap as buyers failed to uphold price above the $240.00 level, which is marked with previous price reactions, 50 SMA (green line) and 50.0% Fibonacci retracement of the upward wave launched at the beginning of pandemic. If current sentiment prevails, downward move may deepen towards key support at $215.20, where lower limit of the 1:1 structure, 61.8% retracement and lows from November 2022 are located. Source: xStation5