There Are Several Risks To Cloud And Software Stocks, But Microsoft Is Still Favorite, Analyst Asserts

Piper Sandler analyst Brent A. Bracelin lowered ratings and revised estimates for several Cloud Applications and Analytics stocks.

The move reflects analysts' view on near-term demand stabilization trends that may not support 'an overly optimistic acceleration' in consensus growth rates, which are expected to increase by ~550bps to 19% in Q4 FY24 from 14% in Q4 FY23.

Also, the analyst writes that the budget priority has shifted in favor of testing and implementing generative AI features and thus creates a high risk of a 'potential H2 airpocket'.

The analyst is also concerned about 2024 growth on a meaningful slowdown in unique visitor growth for many SW stocks in September. 

Despite this, the analyst still favors Microsoft Corp MSFT on AI catalyst and Procore Technologies Inc PCOR on manufacturing and government drivers. 

Downgrades

The analyst lowered Salesforce Inc CRM rating to Neutral from Overweight at a reduced price target of $232 (from $268) on high risks related to execution and M&A, AI monetization uncertainty, and risk-reward. 

The analyst revised EPS estimates to $9.33 from $9.31 for FY24.

Bracelin trimmed Unity Software Inc U to Neutral from Overweight and cut the price target to $30 (from $48) on probable downside risks to 2024 advertisement growth following the pricing-related disagreements with game developers. 

The analyst reduced Asana Inc ASAN rating to Underweight from Neutral at a trimmed price target of $16 (from $24) as renewal headwinds limit visibility to recovery timing. The analyst revised EPS estimates to $(0.37) from $(0.38) for FY23. 

Also, Alteryx Inc AYX is lowered to Underweight from Neutral, and the price target is maintained at $30 on the risk associated with the 2024 growth recovery. FY24 EPS estimate is trimmed to $1.28 from $1.30.

Bracelin downgraded Matterport Inc MTTR to Neutral from Overweight at a lowered price target of $2 (from $4) as 2024 acceleration seems too optimistic. The analyst revised FY24 EPS estimates to $(0.13) from $(0.12). 

Price Action: CRM shares are down 0.36% at $203.01, and MSFT shares are up 1.49% at $331.55 on the last check Monday.