US stock futures rise after Trump announces Japan trade deal
Investing.com -- Morgan Stanley (NYSE:MS) slashed its price target on Microsoft (NASDAQ:MSFT) to $472 from $530, citing weakening demand trends and a deteriorating investor sentiment that is weighing on the outlook.
The new price objective implies more than 22% upside from the last closing price.
The Wall Street firm maintained its Overweight rating on Microsoft shares but acknowledged that the near-term setup remains challenged amid a “wall of worry” around macro and micro headwinds.
“Microsoft performance is lagging the group as sentiment skews negative,” the analysts wrote, pointing to underperformance versus large-cap software peers and signs of slowing momentum in key areas such as Azure and Microsoft 365.
They also pointed out partner feedback highlighting a “wait-and-see” approach from customers on large-scale deals and ongoing execution issues within Microsoft’s partner ecosystem.
Morgan Stanley now expects Azure growth of 31% constant currency for the March quarter, trimming previous expectations of a re-acceleration in the second half. Growth is projected to decelerate by another 100 basis points in the June quarter.
M365 Commercial Cloud forecasts were also lowered to 13.5% for the third quarter, down from 14%, due to tepid Copilot adoption and lengthening deal cycles.
“Further, we still see the path of near-term consensus estimate revisions to be lower given demand headwinds are not fully reflected in consensus estimates,” analysts led by Keith Weiss added.
On a more positive note, the analysts argue that Microsoft’s longer-term positioning in GenAI remains intact.
At 25 times their calendar 2026 GAAP EPS estimate, the analysts believe that Microsoft shares already reflect the recent downward estimate revisions, and that the long-term risk-reward profile is turning more favorable.
“We firmly believe Microsoft’s overall positioning remains strong and that shares may be nearing a valuation floor which drives an attractive long-term risk-reward,” the team wrote.
They see downside risk to consensus EPS forecasts of 1.4% for FY25 and 5.1% for FY26. However, capital expenditure trends may offer some relief. “Every ~1% reduction in capex constitutes a ~1.5% increase in free cash flow,” the note highlights.
While remaining cautious in the near term as the market absorbs downward estimate revisions, the analysts see an attractive 3:1 bull-to-bear risk-reward skew at current levels. They maintain conviction in Microsoft as a “long-term GenAI winner.”