UBS Analyst Karl Kierstead Reiterates Buy Rating on Microsoft Amid Azure Growth Concerns
On Monday, UBS analyst Karl Kierstead reaffirmed a Buy rating on Microsoft (NASDAQ: MSFT), setting a price target of $510.00. As per InvestingPro data, Microsoft is currently trading at $384.53, hovering near its 52-week low, with a price-to-earnings (P/E) ratio of 31x. The stock’s valuation appears slightly below its InvestingPro Fair Value, indicating potential for upside.
Azure’s Slowing Growth and GTM Changes
Kierstead’s commentary centered on the recent dip in Microsoft’s stock performance, which he attributed to a slowdown in Azure’s growth (excluding AI), declining from 24% to 18% over the past two quarters. This deceleration has raised investor concerns, particularly due to Microsoft’s acknowledgment of Go-To-Market (GTM) strategy changes planned for mid-2024. However, the lack of clear communication regarding the root cause and resolution timeframe has led to uncertainty in the market.
To gain further insight, Kierstead and his team engaged with several Microsoft channel partners, whose feedback was detailed in UBS’s latest note. Their findings suggest that GTM changes, particularly in licensing models, channel incentives, and account management, may have impacted Azure’s core growth in Q2 of December.
Long-Term Outlook Remains Strong
Despite these short-term challenges, UBS maintains confidence in Azure’s medium-term growth prospects. The firm acknowledges that the transition from Enterprise Agreements to Cloud Solution Provider contracts, implemented in mid-2024, may be a significant factor behind Azure’s recent performance dip. While these GTM modifications may take several quarters to fully stabilize, they are seen as a reasonable explanation for the temporary setback.
Microsoft’s Market Strength
Despite Azure’s growth slowdown, Microsoft maintains strong fundamentals, reporting 15% revenue growth and a market capitalization of $2.86 trillion. Furthermore, Microsoft continues to hold a strong analyst consensus rating of 1.4 (Strong Buy), with 19 analysts recently revising their earnings estimates upward.
Investment Opportunity
While short-term headwinds persist, UBS believes that Microsoft’s long-term growth story remains intact. Investors may have an opportunity to be patient as Microsoft navigates these GTM disruptions. With a strong analyst consensus and robust fundamentals, Microsoft remains a compelling investment opportunity for those willing to look beyond near-term challenges.
For a more detailed financial analysis and expert insights, investors can refer to the full Microsoft research report on InvestingPro.
