Microsoft’s Stock Downgraded as Oppenheimer Urges Caution on AI Growth
- Oppenheimer downgraded Microsoft stock from “outperform” to “perform.”
- AI-related losses are a key concern, with potential impacts on Microsoft’s margins.
- Despite the downgrade, Microsoft (MSFT) shares are up 11% in 2024.
Microsoft (MSFT) saw its stock downgraded on Tuesday, with analysts from Oppenheimer adjusting their rating from “outperform” to “perform”. This move stands out in Wall Street’s generally bullish stance on the tech giant, where nearly all analysts maintain “buy” or equivalent ratings, according to Visible Alpha.
Despite the downgrade, Microsoft shares edged up by 1%, slightly outperforming the broader market, and are now up more than 11% for the year.
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Why Did Oppenheimer Downgrade Microsoft Stock?
The downgrade primarily stems from concerns over AI-related losses tied to OpenAI, with analysts estimating these could reach $2-3 billion in FY25—figures they had not previously accounted for. While OpenAI operates independently, its strategic partnership with Microsoft poses risks, particularly as enterprises have been slow to adopt AI, which may lead to disappointing revenue results.
In a prior report, Oppenheimer also tweaked down its near-term AI revenue estimates for Microsoft while forecasting increased capital expenditures (CapEx) as the company continues to invest in what it calls “once-in-a-generation technology.”
AI Investment: Long-Term Gains, Short-Term Risks
While Microsoft’s investment in AI technology is seen as transformative, Oppenheimer analysts do not expect it to translate into short-term margin expansion. They highlighted that Microsoft’s price-to-earnings ratio is currently near the midpoint of its five-year range and suggested the stock could potentially trade toward the lower end in the future.
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