Microsoft received a rare stock downgrade. What worries Stifel analysts?

Software developer and cloud service owner Microsoft received a rare downgrade for its stock: Stifel dropped its recommendation to buy the securities. In addition, he set the lowest on Wall Street target price for the company's shares, which implies their fall by 5%. The downgrade from Stifel was another signal that the market is now wary of software developers, and this affects even the largest and most influential players, according to Bloomberg.

Stifel analyst Brad Riback changed his Buy rating for Microsoft shares to Hold, which means a Hold recommendation, Bloomberg reported.

Stifel also lowered its target price for the stock from $540 to $392. This is the lowest target for Microsoft securities from those set by analysts, notes the agency. It assumes decrease of quotations by 5% in comparison with the closing price of trades on Wednesday, February 4.

In trading on February 5, Microsoft's securities fell about 4% to $397.7. This is their lowest price since April 30, 2025.

Microsoft's consensus forecasts for 2027 are "overly optimistic," Riback said in a note cited by Bloomberg. The analyst also cited two reasons for the sharp drop in Microsoft's stock price after last week's report: the growth rate of its Azure cloud business and high spending on artificial intelligence development.

"We see no near-term growth drivers and expect the stock to trade without a pronounced trend until either capital expenditures begin to grow slower than Azure revenue or Azure revenue begins to accelerate sharply," he wrote.

Microsoft's quarterly report showed a slowdown in cloud revenue growth and a sharp increase in capital spending, reigniting questions about when the company's massive investments in AI will start to yield tangible returns, Bloomberg writes. As a result of the collapse, Microsoft shares are now 17% cheaper than they were at the start of 2026.

Reback warned that high capex is likely to "be a constraint" on operating margins. He also sees Azure growth acceleration as unlikely in the near term, citing "widely publicized Azure capacity issues, strong results from Google's Cloud Platform competitor and Gemini models," and "growing momentum around AI startup Anthropic." "We believe accelerating Azure growth in the short term is unlikely," CNBC quoted Rebeck's note as saying.

Microsoft is among the top three cloud providers along with Alphabet, which reported strong growth in Google Cloud on Wednesday night. The third player is Amazon, which will report quarterly results after the market closes on Thursday.

Concerns about the growth rate of cloud business and investment have intensified amid growing worries that artificial intelligence could pose a serious challenge to the long-term growth of software companies, Bloomberg writes. A popular exchange-traded fund tracking the sector has fallen for seven consecutive sessions, losing 15% in that time.

The downgrade from Stifel comes a week after Microsoft shares fell 10% amid a weak operating margin outlook for the fiscal third quarter of 45.1% versus StreetAccount's consensus of 45.5%. Growth in its cloud business also slowed, with revenue from Azure and other cloud services up 39%, compared with a 40% increase in the first quarter. By comparison, Google reported a 48% increase in cloud revenue on Wednesday.

According to MarketWatch, no analysts are still recommending selling Microsoft stock. They now have only four Hold ratings, and most analysts (60 out of 64) recommend buying the stock. The average target price is over $600, which implies an upside of about 45%.

This article was AI-translated and verified by a human editor