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Investing.com -- KeyBanc Capital Markets downgraded Microsoft (NASDAQ:MSFT) shares to Sector Weight from Overweight in a note Thursday.
The bank cited growing investor concerns regarding the timing of artificial intelligence (AI) demand and monetization, as well as increased capital expenditures that may pressure short-term margins.
“We are downgrading MSFT to SW from OW and removing our price target on the heels of increased scrutiny on the timing of AI demand and monetization,” analysts wrote in a note Thursday.
They warned that Microsoft’s large capital investment plans offer “limited one-year out flexibility” that could weigh on margins, particularly in a weakening macroeconomic backdrop.
According to KeyBanc’s first-quarter IT VAR survey, Microsoft’s beat-and-raise performance rate fell to 80 percent from 94 percent—the lowest level since the first quarter of 2023.
The firm also noted a 4-point drop in Microsoft’s perceived strategic importance quarter-over-quarter.
“Our conversations have been largely mixed with increased focus around AI monetization and capex flexibility,” the analysts stated.
Meanwhile, KeyBanc said long-term expectations for cloud workload deployment declined to 48 percent from 56 percent in the prior quarter’s survey, while near-term growth expectations also softened.
Notably, 19 percent of respondents now anticipate slower spending—up from just 8 percent in the previous survey.
“Microsoft remains the best positioned consolidation vendor” in security, KeyBanc acknowledged, but added that “with the recent degradation in cloud deployment expectations and NTM spend, we come away from the survey more cautious.”
The note also highlighted that “IT budget growth in 2025 is now forecast to grow just 1.9%, down from 3.6% expectations just 90 days ago,” with sentiment worsening further after the April 4 tariff announcement.
KeyBanc concluded that while first-quarter bookings may prove resilient, “get ready for cautious updated guidance as pipelines build while signings slow.”