software giant microsoft (MSFT) on Wednesday announced plans to furlough 10,000 employees, about 4.5% of its workforce. The move comes amid a slowdown in its core business and heavy investment in opportunities such as artificial intelligence and cloud computing. Microsoft’s stock price plummeted on the news.
Microsoft expects to incur charges of $1.2 billion in the second quarter ending this fiscal year related to severance and other restructuring charges. The Redmond, Wash.-based company will report its December quarter results on Jan. 24.
Microsoft Chief Executive Satya Nadella said in a memo to employees that customers around the world are cutting spending amid difficult economic times. Meanwhile, declining personal computer sales are hurting Microsoft’s Windows and Office software franchises, he added.
“It is important to note that while we are reducing roles in some areas, we will continue to hire in key strategic areas,” Nadella said. We are allocating to areas of strong growth and long-term competitiveness of the company and divesting in other areas.”
In particular, he highlighted advances in artificial intelligence that will power the next wave of computing.
Microsoft stock price drop
In today’s stock market afternoon trading, Microsoft fell 1.2% to 237.48. Year-to-date, Microsoft shares are down 1%. Last year it dropped 28.7%.
In a note to clients, Wedbush Securities’ Daniel Ives said, “After a decade of hyper-growth, we’re seeing the clock strike midnight in the tech sector.” I’m here. Salesforce (CRM), meta (meta), Amazon (AMZN), among many other companies across the Valley.”
Ives repeated his outperform assessment for Microsoft stock with a 12-month stock price target of 290.
Microsoft aims to “stay in the left lane of innovation while reducing non-strategic areas (such as hardware),” Ives said. The cloud is investing in computing, AI, mergers and acquisitions, he said. One of his pending deals is his $69 billion acquisition of a video game publisher. activision blizzard (ATVI).
Microsoft is also reportedly in talks to increase its investment in artificial intelligence startup OpenAI by $10 billion. In 2019 he invested $1 billion in OpenAI. OpenAI’s technologies include chatbot ChatGPT and image generator Dall-E 2.
RBC Capital Markets analyst Rishi Jaluria expects Microsoft to wind down its loss-making Surface computer business.
Microsoft’s “iPhone Moments”
Oppenheimer analyst Timothy Horan praised Microsoft’s investment in OpenAI. His OpenAI partnership with Microsoft will create “his iPhone moment of artificial intelligence,” he said in a note.
“At least ChatGPT will do what the iPhone did to change the wireless industry and society,” Horan said.
Additionally, Horan rates Microsoft stock as outperforming at a target price of 265.
MoffettNathanson analyst Sterling Auty says Microsoft’s layoffs are short-term and AI is the company’s long-term strategy.
“We believe investors should be watching the news flow around Microsoft’s relationship with OpenAI, but these job cuts,” Auty said in a note Wednesday. Stated. “While the potential layoffs are a tactical reaction to cyclical conditions in this part of the business cycle, the potential investment in OpenAI and the introduction of AI across Microsoft’s portfolio will be significant for decades to come. could help promote the growth of
Auty rates Microsoft stock as market performance or neutral.
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