(Bloomberg) -- Microsoft Corp. shares fell in premarket trading Tuesday following a downgrade from Oppenheimer, the second such analyst cut in recent weeks.
Analyst Timothy Horan lowered his view to perform from outperform and warned that investors were too optimistic about the potential of artificial intelligence to act as a near-term tailwind for the stock.
“The Street is likely overestimating near-term AI revenues as enterprise adoption and infrastructure remains a bottleneck,” Horan wrote in a note to clients. “Enterprises have been slow to adopt AI and associated revenues will likely disappoint.”
Losses at OpenAI, which Microsoft has invested in, are a “primary concern,” he said. Those losses “could be in the $2-3B range in FY25, which we were not previously modeling.”
Shares fell 0.4% in premarket trading. A lower close would represent a sixth straight negative session, the longest losing streak in more than a year. The stock — as of its last close — has declined 12% from its July peak, trading below key moving averages.
Investors have cited “AI fatigue” and the stock’s high multiple as factors behind the recent underperformance. It remains up 8.9% this year, below the Nasdaq 100 Index’s 18% rise, according to data compiled by Bloomberg.
Microsoft shares trade near 30 times estimated earnings, below a recent peak of 35 times, but still above its 10-year average. The Nasdaq 100 has a multiple of 25.5 times, according to data compiled by Bloomberg.
The downgrade is the latest example of how — at the margins — Wall Street is taking a more skeptical view toward big tech. Amazon.com Inc. on Monday received rare downgrade of its own, with Wells Fargo Securities cautioning on margin trends.
In addition, analyst Edison Lee assumed coverage of Apple Inc. at Jefferies and moved the rating to a hold from buy, citing overly optimistic expectations for the company’s latest iPhones, the first to come with artificial-intelligence tools.
Oppenheimer’s downgrade follows a move by D.A. Davidson, which cut its view on Microsoft in late September.
“Competition has largely caught up with Microsoft on the AI front, which reduces the justification for the current premium valuation,” D.A. Davidson analyst Gil Luria wrote in a note to clients, pointing to cloud rivals Alphabet Inc. and Amazon. A diminished lead in AI “will make it hard for MSFT to continue to outperform,” Luria said.
But, even with the downgrades, Wall Street remains overwhelmingly positive on Microsoft’s stock, and on big tech in general. More than 90% of the analysts tracked by Bloomberg recommend buying Microsoft shares, while none have the equivalent of a sell rating. The average analyst price target points to upside of more than 20% over the coming 12 months.
Similar ratios are seen across other megacap names. The percentage of buy ratings on Amazon, Nvidia Corp., and Meta Platforms Inc. make up nearly or more than 90% of analyst ratings, while in Alphabet’s case, buy recommendations represent more than 80% of ratings. Apple however is an outlier, as only 65% of analysts recommend buying the stock.
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