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Microsoft
the stock will fall significantly due to its high valuation, according to Jefferies.
The story back. Microsoft shares (ticker: MSFT) have risen around 35% this year on investor enthusiasm for the company’s Azure cloud computing business and its success in selling software subscriptions such as Office 365.
In April, the company reported better-than-expected fiscal third quarter results.
What’s new. Jefferies Analyst John DiFucci reiterated its underperforming rating for Microsoft stock on Tuesday, predicting weaker-than-expected profitability for its Azure cloud computing business and comparing it unfavorably to
Amazon.co.uk
it’s
(AMZN) Amazon Web Services.
“Azure will likely never see the widely expected margin due to cultural and technical factors,” DiFucci wrote. “We believe Microsoft, the stock, is materially overvalued.”
Microsoft stock fell 1.5% to $135.67 on Tuesday. The company did not immediately respond to a request for comment.
Read more:The 60 Second Case for Microsoft as a Strong Dividend Stock
The analyst said about a third of the company’s free cash flow growth over the past year was due to Microsoft’s Windows operating system, which he said is unlikely to continue.
“We believe there is a significant risk that Azure margins will never reach AWS margins. [and that] Windows cash flow earnings…outperformance is not sustainable,” the analyst added.
Looking forward. DiFucci raised its Microsoft stock price target to $90 from $80, representing a 34% drop from the current stock price.
Corrections & Amplifications
DiFucci raised his price target on Microsoft stock to $90 from $80. An earlier version of this article incorrectly stated that he had lowered his price target on the stock.
Write to Tae Kim at tae.kim@barrons.com
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