As personal computer sales have slumped, computer stocks have suffered a decline, as have chipmakers AMD (AMD) and Intel (INTC), along with computer makers Dell (DELL) and HP (HPQ). now, Microsoft (MSFT) stock is in the crosshairs.
Software giant Microsoft could be “the next shoe to drop,” Jordan Klein, managing director of technology, media and telecommunications sector trading at Mizuho Securities, said in a note to clients on Tuesday. “After the AMD (warning) and the much weaker PC I read last week, I see an increasing risk to Microsoft’s earnings in the coming quarters.”
Soft PC sales will affect Microsoft’s Windows operating system business and possibly its Office productivity software, Klein said. But staying strong in the company’s cloud computing businesses, such as Azure, could help offset PC weakness, he said.
Also on Tuesday, Jefferies analyst Brent Thill lowered his price target on Microsoft shares to 275 from 300, but maintained his buy rating.
Microsoft Stock Drops
“Microsoft remains a fantastic franchise, but we are reducing estimates due to increased currency and PC headwinds and the possibility of SMB (small and medium-sized business) weakness extending into the enterprise,” Thill said in a note to clients.
In the stock market today, Microsoft shares fell 1.7% to close at 225.41.
Late Thursday, AMD warned that third-quarter sales missed the mark on weak PC demand. AMD said its PC chip sales fell 40% year over year in September.
On Tuesday, market research firms Canalys, Gartner and IDC reported that worldwide PC shipments fell in the third quarter. Canalys put the year-on-year unit decline at 17.7%. Gartner estimated a drop of 19.5%. And IDC pegged it at a 15% drop. Gartner said PC shipments have fallen for four consecutive quarters.
“This quarter’s results may mark a historic slowdown for the PC market,” Gartner analyst Mikako Kitagawa said in a news release. “While supply chain disruptions have finally eased, high inventory has become a significant issue due to weak PC demand in both the consumer and business markets.”
Forecasts for PC sales have fallen
In a note to clients on Sunday, investment bank Cowen lowered its forecast for PC sales this year and next. Cowen analysts see PC unit sales falling 22% this year and 6% next year. It previously predicted a 9% drop in 2022 and a 3% drop in 2023.
“Our field work indicates that no improvement is in sight for PC demand, PC ASPs (average selling prices) are expected to trend lower starting in the 4th calendar quarter, and PC inventory is two months higher than pre-pandemic levels,” Cowen analysts said. .
Weak PC demand and high inventories will keep PC makers Dell and HP in the doldrums until at least the second quarter of 2023, they said.
Microsoft shares have held up better than shares of PC makers and PC chip suppliers recently. But his relative strength rating of 39 out of 99 is still poor.
Follow Patrick Seitz on Twitter @IBD_PSeitz For more stories on consumer technology, software and semiconductor stocks.
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