What's Next for Microsoft?

NEW YORK (TheStreet) -- Microsoft (MSFT) had a lot going for it, prior to Satya Nadella becoming CEO. Now, the field has changed and it looks like Microsoft's fun in the sun may be over for the time being.

Deutsche Bank analyst Karl Keirstead downgraded shares to "hold," keeping his $42 price target, as many of the catalysts the Redmond, Wash.-based Microsoft had going for it have now played out. Included in those were Nadella replacing Ballmer, which happened in early February. The analyst also noted that positive sentiment has dwindled from other factors, including "big Xbox One print, a stabilizing PC market with better-than-expected business PC sales, share gains in enterprise software and our belief that Street sentiment towards the mega-cap incumbents (MSFT & ORCL) was too negative relative to the high-growth disruptors."

In Microsoft's fiscal second quarter, the company noted it sold 3.9 million Xbox One consoles, alleviating some fears that the company's next-generation gaming console was not performing as well as anticipated. A recent report from research firm Gartner notes that the PC industry, while still contracting, is not as bad as had been imagined, with HP (HPQ), a leading Windows original equipment manufacturer (OEM), showing strength.

Additionally, Microsoft's commercial Offices and Windows segment saw 10% growth last quarter, rising to $12.67 billion, as Office 365 commercial seats and Azure customers both grew triple-digits. That said, Keistead worries that momentum could slow down, now that Windows XP is officially retired, and most businesses have finally upgraded from the outdated operating system.

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