Wells Fargo trimmed its Microsoft price target to $625 from $650, citing higher capital-spending assumptions in the software maker's outer years. The firm kept its Overweight rating, still expects roughly 41% Azure growth, and tied the cut to higher capacity-cost assumptions.
Wells Fargo lowered its price target on Microsoft to $625 from $650 while keeping an Overweight rating on the stock. The shares last traded at $384.93, down 20% year-to-date.
Wells Fargo raised its capital-expenditure estimates for Microsoft's outer years to reflect updated assumptions. Separately, InvestingPro analysis pointed to the stock's valuation, noting a PEG ratio of 0.77 relative to near-term earnings growth.
The spending that forced the cut
The firm now estimates $45 billion per gigawatt in fiscal years 2027-2028, climbing to over $50 billion by fiscal year 2030. Wells Fargo kept its fiscal 2027 capital-expenditure figure unchanged at $226 billion, but it raised the fiscal 2028 estimate 13% to $278 billion. Those revisions reflect updated assumptions about the price of adding data-center capacity.
Azure and Copilot still driving the bull case
Despite the higher spending, the growth story held. Wells Fargo expects Azure growth of approximately 41% year-over-year in constant currency for the first fiscal quarter. Fourth-quarter Azure growth is also seen landing in the 41% range, a one percentage point beat versus the 39-40% guidance, and Microsoft guided for modest acceleration through the first half of fiscal 2027.
The firm also expects at least 26 million M365 Copilot seats, based on guided net additions of more than 5 million seats in the quarter. Most partners cited mid-to-high single digit percentage adoption within their seat base.
A leaner headcount
The spending push comes alongside job cuts. Microsoft is expected to reduce headcount by approximately 4,800 employees, primarily in non-core areas such as gaming. The reductions align with Microsoft's prior guidance for headcount declines in fiscal 2027.
Source: Investing.com Canada
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