Microsoft Analyst Lowers Rating, Flags Slower Growth, Flat Valuation Outlook

Keybanc Capital Markets analyst Jackson Ader downgraded Microsoft Corp MSFT on Thursday from Overweight to Sector Weight.

Ader expects some durable macro themes to play out during the on-calendar season.

His checks in his sub-sectors and within his VAR survey were both cautious on the outlook for the remainder of the year.

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Ader wrote that even referring to conversations in early March with some marketing partners, it sounded like first-quarter 2025 was holding up fine, but he noted worrisome signs in the deal cycle lengths and willingness to sign.

The analyst’s VAR survey, published yesterday evening, all but confirmed the anecdotes he had been picking up in his conversations. It crystallized his expectation that bookings in the first quarter are likely to be OK, but that guidance from companies, particularly in the enterprise, should be cautious. That is leading him to cut his revenue growth expectations and price targets for the on-calendar reporters as he heads into earnings season.

Foreign Exchange could save the day, but only optically. The sharp reversal of the dollar’s strengthening from the fourth quarter of 2024 should cushion the reported guidance for fiscal 2025 across most of the software.

Compared to when much of the sector gave the most recent guidance, the dollar has weakened 6%-8%.

On the cautious side, Ader highlighted Microsoft, a name he downgraded in conjunction with yesterday’s disappointing first-quarter 2025 VAR survey.

The analyst’s Sector Weight rating is based on a 10-year discounted cash flow (DCF) and free cash flow to the firm (FCFF)/share analysis. This scenario implies a calendar 2025 price that aligns with where the stock trades today. Microsoft, as of the close of April 16, 2025, of $371.61, trades at 8.7 times calendar 2026 EV/revenue and 27.5 times calendar 2026 EV/FCFF versus the overall software sector of 5.8 times EV/revenue and 33.7X EV/FCF.

MSFT Price Action: Microsoft stock is down 0.20% at $370.87 at publication on Thursday.

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