Microsoft Overloved And Overvalued
Microsoft is still seen as a prime pick for stock analysts, even in the face of losing around 30 % of its market capitalisation last year. Most analysts still rate it a buy, with the rest claiming it as a good hold position. Even the big banks like Morgan Stanley and Goldman Sachs lauded Microsoft’s stock as a top pick for 2023, which is impressive given the huge losses it saw last year.
It’s no secret that the macroeconomic ecosystem is uncertain at the moment, but the worrying signs of inflation and interest rates cooling down could be a good sign for the technology sector. With that said, even though there was a significant year-to-date bounce in the markets, Microsoft didn’t move too much at all.
Microsoft’s CEO, Satya Nadella, warned those investing in technology that things were going to be slowing down for the tech giant. With the cloud side of the business decelerating, the worry is that the big names aren’t adjusting their valuation of Microsoft.
Is Microsoft Overvalued?
With interest rates flattening out and inflation dropping, Microsoft’s stock isn’t in a great position.
With the prospect of an economic recession on the horizon, things could get quite bad for Microsoft.
Of course, they have the bankroll to cover any losses themselves, but for investors, this is a worrying sign. Although the USD’s depreciation could take some of the heat off of Microsoft, near-term growth for the company doesn’t look promising.
Looking over the past six months, Microsoft’s earnings and revenue estimates have dropped by 6.5 and 3.5 per cent. With an impending quarterly report on the way, analysts might be looking to call cuts on Microsoft’s stocks in the second quarter of this year.
The real worry is if analysts haven’t factored in the worries of a looming recession when grading Microsoft’s stock. So if we do end up in a deep recession, Microsoft’s stock could be drastically de-rated, leaving investors in a bad spot.