Microsoft in focus as Oppenheimer downgrades on revenue, earnings worries
Microsoft (NASDAQ:MSFT) faced scrutiny as Oppenheimer downgraded its rating from Outperform to Perform, citing concerns over high revenue and earnings estimates. Shares dipped 0.4% in premarket trading. Analyst Timothy Horan highlighted potential losses from OpenAI and projected a decline in gross and EBITDA margins for fiscal 2025 due to AI spending. Despite this, analysts remain bullish, with a BUY rating from Seeking Alpha and a STRONG BUY from Wall Street analysts.
- Microsoft (NASDAQ:MSFT) was in focus on Tuesday as Oppenheimer downgraded the tech giant, citing concerns that revenue and earnings estimates on Wall Street are "too high."
- Shares fell 0.4% in premarket trading.
- "We are downgrading MSFT to Perform from Outperform as we believe estimates for revenue and EPS are too high," analyst Timothy Horan wrote in a note to clients. "OpenAI losses are the primary concern and could be in the $2B-$3B range in FY25, which we were not previously modeling." The downgrade comes after media reports indicated that OpenAI could lose $5B this year.
- Fiscal 2024 gross margins and EBITDA margins came in at 69.8% and 58.1%, but those figures should decline in fiscal 2025 due to heavy spending on artificial intelligence. As such, earnings growth in the first-quarter should be 3%, with a "weakish" guidance for the rest of the year, Horan added.
- Analysts are exceptionally bullish on Microsoft (MSFT). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a STRONG BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates MSFT a STRONG BUY.