Microsoft Valuation Not ‘Overly Compelling’ Post-Results Says Analyst

Microsoft (NASDAQ: MSFT) reported its fiscal second-quarter earnings after the close Tuesday, topping profit expectations but missing revenue forecasts.

The tech giant reported earnings of $2.32 per share, above the $2.29 per share expected, while revenue came in at $52.75 billion, below the $52.94 billion expected.

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Premarket Wednesday, Microsoft shares have declined more than 2%. While some analysts have cut price targets on the stock, BMO Capital downgraded Microsoft to Market Perform from Outperform, lowering the price target to $265 from $267.

BMO said in a research note that until Microsoft’s Azure growth stabilises, its shares are likely to be range bound. It also believes too much uncertainty remains on Azure, which represents around 31% of BMO’s revenue estimates. In addition, the firm does not find Microsoft’s current valuation “overly compelling.”

Elsewhere, Raymond James analyst Andrew Marok cut the firm’s price target on Microsoft to $270 from $280, maintaining an Outperform rating on the stock.

Marok told investors in a research note that Microsoft’s results were “solid,” but guidance for Q3 was below expectations. Nevertheless, Raymond James continues to see Microsoft as a long-term winner and one of the more defensive names under its coverage due to its substantial scale benefits.

At Wolfe Research, analyst Alex Zukin reduced the price target on Microsoft to $265 from $280, keeping it at Outperform.

Zukin noted that Microsoft reported its fiscal Q2 results with sales and Azure beats, but its guidance came in below expectations. However, he believes the reset expectations for a declining macro environment is a reason to get constructive on fiscal 2024 estimates. As a result, the analysts sees a buying opportunity in Microsoft shares post-results.

JPMorgan also cut its price target on Microsoft to $265 from $275, keeping an Overweight rating on the stock. Even so, the firm views Microsoft “as the best house in a gradually deteriorating neighborhood.”