Stifel Lowers Microsoft’s Price Target to $640

Stifel analyst Brad Reback lowered on October 30, 2025, the price target on Microsoft to $640 (from $650) while maintaining a ‘Buy’ rating on the stock.

“While MSFT posted a solid 1Q print, with 39%-CC Azure growth at the low end of buyside expectations, the stock traded off ~4% AHs as persistent Azure capacity shortages (expected for several more quarters) caused 2Q Azure guidance of 37%-CC to be toward the bottom of buyside targets.

Management is moving aggressively to address this situation, raising FY26 capex growth expectations to >60% with spend skewed toward compute.

We now model $148B, up 68% YoY, vs our previous estimate of $120B (+36%).

That said, this accelerated spend comes with a somewhat near-term GM margin headwind (magnitude unclear), and when coupled with increased OPEX spending for high-priced (salary/ compute) AI talent, we expect op-margins to compress over the course of FY26, ending the year at ~43%, well below 1Q’s 48.9% level that benefited (~100 bps) from in-period rev-rec, even as FY26 op-margins remain “essential-flat”, in line with management FY commentary last quarter.”

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