Microsoft Corp (MSFT)

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Microsoft slips 2% as UBS cuts estimates again on 'too high' Azure growth expectations
By: Investing.com | April 11, 2023

UBS analysts reiterated a Neutral rating and a $275 per share price target on Microsoft (NASDAQ:MSFT) as they believe Azure estimates remain too high.

“Recent trends (spend optimization/cuts, slower migration as well as new developer activity) have continued into 1Q23 and if anything feel worse than 3 months ago,” the analysts said in a client note.

The changes to Microsoft’s estimates have been made after conducting ~20 checks with Azure/AWS customers. The analysts' conclusion is that 2023 estimates for Amazon's (NASDAQ:AMZN) AWS, Microsoft’s Azure, and Google's (NASDAQ:GOOGL) Cloud remain “too high.”

UBS now sees the cloud segment rising 24% in the June quarter at a constant currency, below the prior estimate of 25% and Street’s 27%.

“We conclude that customer efforts to optimize/trim their cloud spend will be deeper and last longer than most think,” they said in a note.

“Relative to the consensus view that we’re deep enough into these efforts such that the deceleration in cloud growth can begin moderating meaningfully as early as 2Q23, we conclude that such efforts will persist at a high level throughout 2023.”

As far as the guidance on the upcoming earnings call is concerned, the analysts believe that “Microsoft might guide to double-digit EPS growth but that a double-digit revs growth outlook seems unlikely.”

They also told investors to watch for any comments about Microsoft’s OpenAI investment and monetization plans, which “could be as impactful to the stock as the reported financials.”

Microsoft shares are down almost 2% today.

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