Microsoft isn’t immune to a recession, but should gain share in key areas

Like the remainder of its tech brethren, Microsoft (NASDAQ:MSFT) had a troublesome 2022, as its shares fell greater than 25% on worries over rising rates of interest, surging inflation and a slowing world financial system.

Whereas 2023 isn’t anticipated to be fairly as dangerous as 2022, sentiments stay sturdy concerning the world financial system slowing additional and potential tip right into a recession. Nonetheless, there are some views on Wall Road that the software program large may nonetheless see enterprise enhancing this yr.

Morgan Stanley analyst Keith Weiss, who has an obese ranking on Microsoft (MSFT), famous the corporate is prone to profit from continued IT spending and is considered increased than the place it is positioned within the funding agency’s survey of chief data officers.

The survey, which expects software program spending to develop 3.3% in 2023, identified that Microsoft (MSFT) is “higher positioned than most” in a downturn, provided that it’s nonetheless the chief in anticipated IT funds good points as a result of shift to the cloud. Moreover, the survey added that Microsoft (MSFT) is predicted to have a web of 40% of anticipated share good points for IT pockets spending, properly forward of Amazon (AMZN), which is predicted to seize 24% of good points.

Weiss mentioned that Microsoft (MSFT) expanded its lead over Amazon (AMZN), with about 48% of the CIOs surveyed now anticipating Microsoft “to see the most important incremental IT funds share good points over the following three years,” in comparison with 15% for Amazon.

As well as, Microsoft (MSFT) has continued to make good points in different areas comparable to safety, cloud computing, knowledge warehousing, enterprise intelligence and analytics, digital transformation and synthetic intelligence and machine studying.

The corporate might make additional advances in AI if it integrates OpenAI’s ChatGPT into its merchandise, together with Bing and Workplace, one thing the corporate has reportedly mentioned.

Lastly, Microsoft (MSFT) seems to be poised to learn as clients slim down the variety of distributors in areas comparable to knowledge administration and automation, based on the CIO survey.

“With CIOs more and more trying to consolidate distributors in a slowing spending atmosphere, we see Microsoft as greatest positioned to learn from consolidation given its breadth of features and alignment to CIO precedence record and defensive IT tasks,” Weiss added.

Regardless of the anticipated advantages this yr, not all the pieces is developing roses for Microsoft (MSFT).

Firstly, it must take care of a weaker IT spending atmosphere, although that’s one thing that each firm within the house will possible must face.

Moreover, there may be the potential that the expectations seen within the survey for Microsoft (MSFT) don’t come to fruition, together with potential downgrades for Microsoft 365, beforehand often known as Workplace 365, on account of its pricing.

In response to the survey, 8% of CIOs mentioned they might downgrade subscription tiers within the subsequent yr, whereas 5% mentioned they might swap to lower-priced variations of Microsoft 365, with fewer choices, which might influence Microsoft’s (MSFT) income.

Nonetheless, the expectation is that Microsoft (MSFT) will wind up higher than its friends, a thesis that has not but proven up in its inventory, because it trades at roughly 19 instances estimated 2024 earnings, in comparison with roughly 30 instances for friends.

“Whereas there are undoubtedly some indicators Microsoft isn’t immune from the weaker IT spending atmosphere, the preponderance of proof in our survey work suggests favorable near-term consolidation tendencies and additional enchancment within the longer-term positioning in opposition to core secular progress initiatives,” Weiss wrote.

On Thursday, Citi listed Microsoft (MSFT) amongst its favourite enterprise utility software program shares for 2023.