Wall Street analysts Tuesday clashed on Microsoft's prospects ahead of the software giant's September-quarter earnings report. One brokerage firm downgraded Microsoft stock to neutral while two others maintained their buy ratings.
Oppenheimer analyst Timothy Horan lowered his rating on Microsoft stock to perform, or neutral, from outperform. In a client note, he said the consensus estimates for revenue and earnings per share look too high for the just-finished quarter.
"Enterprises have been slow to adopt AI and associated revenues will likely disappoint," Horan said.
Also, heightened capital expenditures and operating expenses to support artificial intelligence initiatives will pressure earnings, he said. Mounting losses at partner OpenAI are his "primary concern."
Because Microsoft is investing in a "once-in-a-generation technology, we don't believe expanding margins will be a short-term priority," Horan said.
Microsoft Stock Is Below Key Levels
On the stock market today, Microsoft stock rose 1.3% to close at 414.71. However, in a negative sign, Microsoft stock is trading below its 50-day and 200-day moving average lines, according to IBD MarketSurge charts.
Microsoft has not yet set a date for its fiscal first-quarter earnings report. But it is likely to occur in about two weeks.
Analysts polled by FactSet expect Microsoft to earn $3.10 a share on sales of $64.6 billion in its fiscal Q1. In the year-earlier period, Microsoft earned $2.99 a share on sales of $56.5 billion.
Azure, Cybersecurity Businesses Touted
Elsewhere on Wall Street Tuesday, analysts at Truist Securities and Wells Fargo reiterated their buy ratings on Microsoft stock.
Truist analyst Joel Fishbein kept his buy rating on Microsoft stock with a price target of 600.
In a client note Tuesday, Fishbein said Microsoft's cybersecurity business "has become an increasingly important area for the company." He said the business "could be an upside driver to current expectations."
Meanwhile, Wells Fargo maintained its overweight rating on Microsoft stock with a price target of 515.
Wells Fargo noted that stronger-than-usual checks suggest momentum in Microsoft's Azure cloud computing business is continuing.
Microsoft stock is in the IBD Long-Term Leaders Portfolio.
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