Microsoft shares fell Monday after Wolfe Research cut its price target to $525 from $570, citing surging memory prices that pushed its fiscal 2027 capex estimate to $270 billion. The firm maintained its Outperform rating on the stock. The move comes as the company also announced thousands of job cuts across its Xbox and Salesforce units.
Microsoft Corp. shares declined Monday as Wolfe Research cut its price target to $525 from $570, citing surging memory prices that pushed its fiscal 2027 capital expenditure estimate to $270 billion.
"The revision pushes our FY27 free cash flow estimate to negative $17.4 billion, compared to a prior estimate of approximately $14.7 billion positive and roughly $48 billion below the consensus of $31 billion," Alex Zukin, analyst at Wolfe Research, said.
Zukin lowered his FY27 gross margin estimate to 63.1% from 64%, against the consensus of 66.6%, and trimmed his EPS estimate by 1% to $19.02, now 2% below consensus. The firm raised its capex estimate by $40 billion to $270 billion, citing recent memory price increases including commentary from Micron Technology's latest earnings.
Despite the cuts, Zukin said Wolfe "remains long-term bullish on MSFT's full-stack monetization approach to AI with Azure growth acceleration and rising Agent monetization potential." The firm forecasts Azure growth of 41% in fiscal 2027 and 40% in fiscal 2028, ahead of consensus estimates of 40% and 38%, respectively. Zukin noted Microsoft disclosed $11.5 billion in restricted investments related to a supplier agreement last quarter, which he said "could reflect the company locking in a portion of component costs tied to memory," potentially offsetting some price pressure.
The price target cut adds to pressure on Microsoft as investors focus on the company's elevated AI spending. The Redmond, Washington-based software giant also announced plans to cut about 4,800 jobs, roughly 2% of its global workforce, while overhauling its Xbox division with 3,200 job cuts and the divestiture of five studios.
The Wolfe revision reflects a broader debate about the sustainability of the AI memory cycle. Bloomberg Intelligence's Shuli Ren argued the global memory shortage likely peaked in the second quarter of 2026, with conditions potentially swinging into oversupply by 2028 as manufacturers including Samsung, SK Hynix, and Micron expand production after record pricing.
The decline puts Microsoft shares under pressure as investors weigh near-term cost headwinds against long-term AI revenue potential. The company's next catalyst will be its fiscal fourth-quarter earnings report, where investors will look for Azure growth acceleration and updated capex guidance.
This article is for informational purposes only and does not constitute investment advice.
