Morgan Stanley Wonders If Microsoft Hit A Bump In Q2 Or If It's Something Worse

Morgan Stanley analyst Keith Weiss noted on Tuesday how Microsoft Corporation MSFT reported an “uneven” Q2 and questioned if it is was just “bumps in the road” or if something "more persistent" has ocurred.

Weiss felt that it may take a little time for investors to gain confidence as gross margin dollar growth failed to meet expectations, coming in at just 1 percent year-over-year due to “weaker commercial business.”

FX impacts, “execution challenges in China and Japan” and a decline in Windows Pro and Office “from tough comps against the XP refresh cycle” were cited as reasons for the disappointment in commercial billings growth.

Weiss noted that while “newer initiatives like Surface, Xbox One, Office 365, Azure and even Lumia units all appear to be tracking ahead of plan, the overall commercial business represents ~70 percent of operating income and needs to show resilient growth in order for Microsoft to return to sustainable EPS growth near-term.”

The analyst note recommended waiting to see if the slowdown was just “tough comps” as opposed to “systemic issues” facing Microsoft before getting more aggressive on the shares.

The firm rated the stock Equal-weight with a $54 price target.

Microsoft recently traded at $43.08 in Tuesday’s premarket, down 8.36 percent.