Microsoft is a 'share gainer' claims Morgan Stanley analyst

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By Sam Boughedda

In a note to clients Wednesday, Morgan Stanley analysts defended Microsoft (NASDAQ:MSFT), saying the company is not immune to macro headwinds, but it is well-positioned.

The analysts, who have an Overweight rating and a $307 price target on the stock, told investors in a research memo that moderating IT and software budget growth and an unfavorable up-to-down budget revision expectation creates a challenging backdrop into CY23. However, Morgan Stanley sees Microsoft as a share gainer – "benefitting from vendor consolidation and its strong positioning addressing CIO priorities and secular trends."

"Morgan Stanley AlphaWise CIO Survey Suggests Continued IT Spending Moderation, Though Microsoft Screens Better than Most Given its Positioning. CIOs now expect software spending to increase 3.6% in 2022, down ~10bps from the previous reading in our 3Q22 survey. Furthermore, the 2023 software spending growth expectation is at 3.3%, below the current 2022 reading," write the analysts.

The analysts add that while growth expectation remains tepid, several forward indicators in the CIO survey lead them to believe Microsoft remains better positioned than most in a downturn.

"Microsoft remains the leader in expected IT budget gains due to the shift to the cloud over the next three years. In fact, Microsoft expanded its lead over Amazon (NASDAQ:AMZN), with ~48% of the CIOs surveyed now expecting Microsoft to see the largest incremental IT budget share gains over the next three years on a net basis compared to the second placed Amazon at 15%," the analysts explain. "Microsoft continues to be well positioned within key spending priority categories such as security software, cloud computing, DW/BI/analytics, digital transformation and AI/ML."

Furthermore, they told investors that Microsoft also occupies key defensive project categories such as security software, digital transformation, and cloud computing and that the tech giant "appears poised to benefit from an accelerating vendor consolidation in areas like Data Management and Automation."

Microsoft shares are trading 1.9% higher on Wednesday.