Microsoft Target Slashed to $400 as Azure Margins Seen Falling to 63%
MSFT•Stifel reduced Microsoft’s price target to $400, citing an expected FY27 gross margin decline to about 63% versus a 66.5% consensus, driven by Azure’s rapid expansion and higher capex. The firm warns consensus EPS of $19.45 could be overstated by $1 due to margin pressure and rising finance lease obligations.
1. Stifel Cuts Price Target to $400
Stifel lowered Microsoft’s 12-month price target to $400, projecting FY27 gross margins around 63%, roughly 300 basis points below the Street consensus of 66.5%, as cloud margin pressures intensify.
2. Azure Growth Spurs Margin Compression
Azure’s revenue is growing three times faster than Microsoft’s overall business, but rising capital expenditures to support that expansion are expected to compress its gross margins by 100 to 150 basis points each quarter through FY27.
3. EPS Estimates Face Downward Pressure
Analysts’ FY27 EPS forecasts of roughly $19.45 may be overstated by about $1, as margin erosion and increased finance lease obligations weigh on per-share earnings despite double-digit operating income guidance.
4. Operating Expenses Remain Elevated
Microsoft has guided to mid-to-upper single-digit operating expense growth driven by ongoing R&D investments, limiting the offset from potential cost efficiencies even as cloud margins are squeezed.
