Microsoft's AI Costs Hit Cash Flow, But Wolfe Still Sees 34% Upside for MSFT Stock
Complete. Here is the key summaryWolfe Research lowered Microsoft's price target to $525 from $570, citing rising AI infrastructure costs that are expected to drive negative free cash flow of $17.4 billion in fiscal 2027. Despite the cut and a recent stock dip, analysts maintained an Outperform rating, noting the new target still implies a 34% upside.
Microsoft Corporation (MSFT), the company behind Windows, remains attractive despite rising pressure from AI infrastructure costs, according to Wolfe Research.
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In a new report, five-star analyst Alex Zukin and four-star analyst Joshua Tilton reiterated an Outperform rating on MSFT and lowered their price target to $525 from $570. The new target still implies about 34%.
The cut reflects a simple yet important issue for investors: building AI capacity is becoming more expensive. Wolfe raised its fiscal 2027 capex estimate for Microsoft to $270 billion from $230 billion, citing higher memory costs tied to AI infrastructure.
"Recent memory price increases" led the analysts to lower their profitability outlook, with Wolfe now expecting Microsoft to generate negative free cash flow in fiscal 2027. The firm now models FY27 free cash flow of negative $17.4 billion, compared with its prior forecast of positive $14.7 billion.
Meanwhile, MSFT shares dropped nearly 1% on Monday, closing at $386.74.