Over the last decade, Microsoft Corp. has usually gotten the benefit of the doubt on Wall Street--on the few occasions when there has been much doubt about its growth prospects.
But the intense selling of the shares Monday, leaving the stock 44% below its record high reached earlier this year, suggests that more institutional and individual investors fear the challenges to the company's future are becoming overwhelming.
"It isn't just the [federal antitrust] court case; it is also sluggish fundamentals," said Shannon Reid, manager of the $800-million Evergreen Select Strategic Growth Fund.
The company's quarterly earnings report released Thursday, which warned of weaker-than-expected sales growth, "reinforces in some people's minds the thought that maybe the market is moving away from Microsoft," Reid said. "Processing is moving away from the desktop [PC] and to the network."
Reid, who said he is "underweight" in Microsoft and not buying the stock, said history seemed to be repeating itself: "The Justice Department brought its suit against IBM when it was at the apex of its power. The same thing is happening with Microsoft."
Analysts at major U.S. brokerages still overwhelmingly view Microsoft favorably, with 29 of the 34 analysts who follow the stock rating it a "buy."
Nonetheless, "The easy-money days are behind us," said analyst Mary Meeker at Morgan Stanley Dean Witter & Co. "The company has gone from superhuman to, well, human, albeit with some powerful advantages."
Meeker cut her revenue and profit estimates for Microsoft on Monday, though she left her rating on the stock at "outperform."
But some investment managers viewed Monday's 15.6% plunge in the stock as a classic buying opportunity.
"There is a lot of uncertainty on the table," said Jeffrey Van Harte, senior vice president at Transamerica Investment Management. "It's probably one of those points in time when you can smell an opportunity. The fundamentals are there, it's still a great franchise."
He said he was making some "incremental" additions of Microsoft to portfolios he manages.
The shares now trade at 35 times analysts' consensus earnings estimate of $1.92 a share for the year that will end in June 2001, according to Zacks Investment Research. That is one of the lowest price-to-earnings multiples of any major tech stock.
"I'm going to be buying it all day today," Fred Sears, manager of the Investors Capital 20 Fund, said Monday.
Calling the stock "incredibly cheap," Sears said, "I'm not trying to catch the bottom, but I don't think this is going to go a lot lower." He also said he did not think that Microsoft will be broken up by the government.
With 1,022 mutual funds owning Microsoft, according to Morningstar Mutual Funds, the stock's outlook is of more than passing interest to the investment management business--and many small investors.
The stock could bounce between $60 and $70 in the near term, said Melissa Eisenstat at CIBC World Markets, who on April 3 cut Microsoft to "hold" from "buy" because of the company's legal battle.
"I would not be rushing to buy the stock," Eisenstat told Bloomberg Television. "The news is going to be kind of rocky for the company for the next several months."
Some analysts noted that Microsoft has been known for downplaying the outlook for its business and then turning in results that exceed its own forecasts.
The company may be doing something similar in predicting weak PC demand, some say.
Christian Koch, an analyst at Trusco Capital Management in Atlanta, said Microsoft may have exaggerated the gloominess before a judge rules on what penalties to impose on the company as part of the antitrust case.
Koch, whose firm has sold some of its Microsoft shares in recent months, notes that Intel Corp. and Dell Computer Corp. haven't reported the same sluggishness in PC sales.
PaineWebber Inc. analyst Don Young was one of the few analysts to sound a bullish note on Microsoft on Monday. The stock "remains one of our favorite investment choices," he wrote to clients. The company should benefit from a shift to networked computing, said Young, who rates the stock a "buy."