DiFucci is concerned about how Microsoft’s business could fare in a weak macroeconomic climate.

“While most investors see MSFT as a large stable business that can weather any storm, it does have vulnerabilities, some of which could be exacerbated by this macro slowdown,” he wrote.

DiFucci said in his note to clients that Microsoft is more exposed to small- and mid-sized businesses than other companies in his software coverage. Additionally, the company’s Windows business is a bigger contributor to profit than it is to revenue, and it appears to be facing some pressure.

“[W]hile this business seemed like the Energizer Bunny during COVID, it seems to have moderated materially of late and this is expected to continue by industry analysts,” DiFucci wrote. “CEO Satya Nadella’s comments that ‘the PC has never been more relevant to work, life, and play’ on the F3Q22 conference call might be the visionary’s first miscalculation after a long line of successes.”

DiFucci also sees risk to growth estimates for Microsoft’s Azure cloud-computing business.

He downgraded shares of several other software stocks as well in his Tuesday note, moving to a neutral rating from a buy rating on shares of Palo Alto Networks Inc. PANW, -1.16%, Splunk Inc. SPLK, +0.28%, and Zscaler Inc. ZS, +2.41% He downgraded shares of Cloudflare Inc. NET, +2.50% and Workday Inc. WDAY, -0.54% to sell from neutral.

DiFucci questions whether Palo Alto Networks will be able to post the sorts of billings beats that investors have come to know, and he worries about “suppressive forces” impacting the business. On Splunk, he said that the stock “probably won’t get much credit until it begins to show material improvement (in anything).” As for Zscaler, DiFucci has concerns about annual contract value and its impact on revenue growth.

In moving to a bearish stance on shares of Cloudflare, he predicted that the company could offer 2023 revenue guidance below consensus expectations. On Workday, he noted that the company’s “core business is selling large transformational deals that require multi-million dollars of commitment by the customer and can take years to implement,” and he said that these “are just the type of efforts that are delayed, postponed, and even canceled during a time of macro slowness.”