No matter the how strong their business, software stocks as a group are taking a real clobbering these days. On Thursday this rout continued, and it claimed some of the biggest names in the segment. One was Microsoft (MSFT 4.95%), which saw its shares decline by nearly 5% that trading session. The negative sentiment on software titles was exacerbated by an analyst's downgrade.
A more bearish view
Well before market open that morning, Stifel's Brad Reback changed his recommendation on Microsoft stock. He's now convinced it's only a hold, where previously he had flagged it as a buy. This was accompanied by a significant price target reduction to $392 per share from $540.
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According to reports, Reback wrote in his update that analysts' projections for the company's fiscal 2027 fundamentals are too high. He cited operational tailwinds, including supply issues with the Azure cloud computing business and the rapidly increasing prominence of artificial intelligence (AI) models such as Alphabet's Gemini.
Additionally, the analyst believes that Microsoft will have notably higher capex than many expect. He increased his forecast for the line item to $200 billion for the company in fiscal 2027; that's well above the $160 billion prognosticator average, according to his research.
NASDAQ: MSFT
Key Data Points
Crowd mentality
To me, Microsoft's sell-off (and that of many other software and software-adjacent stocks) is now driven mostly by panic and herd behavior. We should remember that Microsoft is still a powerful force on the market, not least because its software -- legacy though it may be -- powers the systems of many PC networks and individual computers.
The company has numerous revenue streams it can boost, so I wouldn't worry much about its long-term growth prospects (or Azure's recent struggles, while we're at it). This rout feels to me like a fine opportunity for bargain hunters to grab this quality stock at a discount.
