Microsoft Stock Could Be Next Shoe To Drop In PC Market

Declining sales of personal computers have slammed PC-exposed stocks like chipmakers AMD (AMD) and Intel (INTC), along with computer makers Dell (DELL) and HP (HPQ). Now, Microsoft (MSFT) stock is in the crosshairs.

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Software giant Microsoft could be the “next shoe to drop,” Jordan Klein, managing director for tech, media and telecom sector trading at Mizuho Securities, said in a note to clients Tuesday. “Post AMD (warning) and the much weaker PC read-through last week, I see growing earnings risk facing Microsoft in coming quarters.”

Soft PC sales will impact Microsoft’s Windows operating system business and perhaps its Office productivity software, Klein said. But continued strength in the company’s cloud-computing businesses, such as Azure, could help offset PC weakness, he said.

Also Tuesday, Jefferies analyst Brent Thill lowered his price target on Microsoft stock to 275 from 300 but kept his buy rating.

Microsoft Stock Drops

“Microsoft remains a fantastic franchise but we’re lowering estimates due to increased foreign-exchange and PC headwinds and the potential for SMB (small and midsize business) weakness spreading to the enterprise,” Thill said in his note to clients.

On the stock market today, Microsoft stock fell 1.7% to close at 225.41.

Late Thursday, AMD warned that its third-quarter sales missed views on weak PC demand. AMD said its PC chip sales plummeted 40% year over year in the September quarter.

On Tuesday, market research firms Canalys, Gartner and IDC reported that worldwide PC shipments plunged in the third quarter. Canalys put the year-over-year unit decline at 17.7%. Gartner estimated a drop of 19.5%. And IDC pegged the decline at 15%. PC shipments have fallen for four straight quarters, Gartner said.

“This quarter’s results could mark a historic slowdown for the PC market,” Gartner analyst Mikako Kitagawa said in a news release. “While supply chain disruptions have finally eased, high inventory has now become a major issue given weak PC demand in both the consumer and business markets.”

PC Sales Forecasts Lowered

In a note to clients on Sunday, investment bank Cowen lowered its PC sales forecasts for this year and next. Cowen analysts see PC unit sales dropping 22% this year and 6% next year. It previously forecast a 9% drop in 2022 and a 3% drop in 2023.

“Our field work indicates that there’s no improvement in sight for PC demand, that PC ASPs (average selling prices) will inflect lower starting in calendar Q4, and that PC inventory is two months higher than pre-pandemic levels,” Cowen analysts said.

The weak PC demand and high inventories will remain an overhang for PC makers Dell and HP until at least the second quarter of 2023, they said.

Microsoft stock has held up better than shares of PC makers and PC chip suppliers lately. But its Relative Strength Rating of 39 out of 99 is still poor.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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