Microsoft Stock Slides As UBS Cuts Rating, Flags Azure, Office 365 Weakness

UBS analyst Karl Keirstead warns of a "steep growth deceleration" for Microsoft's flagship cloud division.

Microsoft  (MSFT) - Get Free Report shares moved lower Wednesday after analysts at UBS lowered their rating on the tech giant, citing weakness in its flagship cloud division.

UBS analyst Karl Keirstead lowered his rating on Microsoft to 'neutral' from "buy', while shaving $50 from his price target to $250 per share, as he cautioned that its Azure cloud offering is heading for a sharp deceleration in growth, due to what he called "maturation, not just a tough macro". He also noted vulnerability in Microsoft's Office 365 business as clients cut back on hiring and retrench for slower growth.

Azure revenues rose 35% over the three months ending in October, the group's fiscal first quarter, slowing notably from its prior quarter gains in the mid to high 40-percent range as companies pulled back on digital infrastructure spending as companies pulled back on digital infrastructure spending. Microsoft said that rate will slow further into the second quarter even after stripping away the impact of the stronger U.S. dollar.

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The group also forecast lower-than-expected revenues from its umbrella 'intelligent cloud' division, which it sees between $21.25 billion and $21.55 billion, as well as its personal computing business, with a forecast range of between $14.5 billion and $14.9 billion.

Microsoft shares were marked 1.95% lower in pre-market trading to indicate an opening bell price of $234.94 each.

Microsoft will likely publish its second quarter earnings on January 24, with early projections pointing to an adjusted bottom line of $2.30 pe share on revenues of around $53 billion.

For the three months ending in September, overall group revenues rose 10.5% to $50.1 billion, just ahead of Street forecasts, while its bottom fell 15% to $17.3 billion.

Productivity and business division revenues rose 9% to $16.5 billion, Microsoft said, while Intelligent Cloud revenues were up 24% to $25.7 billion. More Personal Computing revenues rose only 3% to $13.3 billion.