Microsoft shares slipped on Friday as investment firm Piper Sandler cut its estimates due to continued foreign exchange headwinds that are likely to persist.
Analyst Brent Bracelin, who rates Microsoft (MSFT) shares overweight, lowered his price target to $312 from $352 and cut fiscal 2023 revenue estimates by $3.3B and full-year earnings by 21 cents per share.
"Strength in the U.S. Dollar has persisted into June and July with the Euro and Yen exchange rates falling to 20-year lows," Bracelin wrote. He added 57% of incremental growth came from outside the U.S. last year, so it's possible that foreign exchange headwinds could impact fiscal 2023.
Microsoft (MSFT) shares fell 1.32% to $264.85 in early trading.
Last month, Microsoft (MSFT) cut its revenue and earnings outlook for the fourth-quarter, citing the impact of foreign exchange headwinds.
Despite the estimate cuts, Bracelin explained that Microsoft's (MSFT) cloud operations are poised to surpass $100B on an annualized run-rate for the first time, assuming 29% year-over-year growth. This could actually help "insulate overall growth prospects" for Microsoft (MSFT), as 46% of revenues are tied to the cloud.
"Even assuming growth for Azure moderates to the low 40% and [Office 365] moderates to the low-to-mid teens, we still see a scenario where revenue can grow double-digits," Bracelin added.
In addition, Microsoft's (MSFT) "robust" operating cash flows could allow the company to continue strengthening its balance sheet, buying back more stock, boosting its dividend or continue to make acquisitions, the analyst explained.
On Wednesday, the U.K.'s Competition and Markets Authority said it had opened an inquiry into the Microsoft (MSFT) - Activision Blizzard (ATVI) deal to see if it will impact rivals.