By Sam Boughedda
TD Cowen's checks point to continued elevated headwinds for Microsoft (NASDAQ:MSFT) Azure and Windows, analysts said in a note Tuesday. However, they maintained an Outperform rating on the stock and raised the price target to $300 from $285.
The analysts explained that third-party data showed a "continued high level of deceleration in commercial bookings growth for the Big 3 hyperscalers, w/ new ACV bookings declining in the low double digits in C1Q vs. +6% in C4Q and +20% in C3Q, suggesting the rate of decline is accelerating, particularly in the Americas."
In addition, they noted that recent data on PC trends show continued weak demand trends, with Gartner citing a 30% Y/Y decline in PC shipments in C1Q.
"We think this weaker shipment growth could drive Windows OEM numbers to the lower-end of MSFT's guidance range of down mid to high 30s (vs. -39% last qtr). For total Windows revenue, we model -20% cc growth in MarQ (vs. -26% in DecQ), and -12% in JunQ as comps get easier, though we see some modest downside risk," the analysts added.
While TD Cowen believes the elevated headwinds were appropriately modeled for the March quarter, they believe it could drive some modest risk to June quarter estimates.
"We look for more stability in Office due to vendor consolidation & rising ASPs. But with Azure still likely to face sharp deceleration trends, we see this as a near-term overhang," analysts concluded.