Wolfe Research cut its price target on Microsoft to $525 from $570, blaming surging memory prices that pushed its fiscal 2027 capital spending estimate to $270 billion. The firm kept its Outperform rating and stayed bullish on Azure and AI monetization.
Wolfe Research cut its price target on Microsoft to $525 from $570 in a note on Monday, while keeping its Outperform rating on the stock. The firm tied the cut to surging memory prices, which forced it to raise its fiscal 2027 capital expenditure estimate to $270 billion from $230 billion. Microsoft shares fell 1.71% to $383.81 on the day.
Memory costs drive up the capex estimate
Analyst Alex Zukin told investors that recent memory price increases, including commentary from Micron's latest earnings, led Wolfe to revise its already above-consensus capex estimates higher to cover rising component costs for AI infrastructure. Wolfe now sees FY27 free cash flow at negative $17.4 billion, against a prior estimate of roughly $14.7 billion positive and about $48 billion below the consensus of $31 billion.
The estimate cuts extend to margins and earnings. Zukin lowered his FY27 gross margin estimate to 63.1% from 64.0%, against a consensus of 66.6%. He also trimmed his FY27 EPS estimate by 1% to $19.02, now 2% below consensus.
Wolfe stays bullish on Azure
Despite the cuts, Wolfe stayed long-term bullish on Microsoft's approach to monetizing AI, pointing to Azure growth and rising agent monetization potential. The firm forecasts Azure growth of 41% in FY27 and 40% in FY28, ahead of consensus estimates of 40% and 38%.
Zukin also noted that Microsoft disclosed $11.5 billion in restricted investments tied to a supplier agreement last quarter, which Wolfe believes could reflect the company locking in part of its component costs tied to memory and potentially offsetting some price pressure.
Source: Investing.com
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