Wells Fargo Lowers Microsoft Price Target to $625

Wells Fargo analyst Michael Turrin lowered the price target on Microsoft (NASDAQ: MSFT) to $625 (from $650) while maintaining an Overweight rating.

“Azure expects more even, expect FQ1 guide ~41% y/y cc: Bogeys for FQ4 Azure growth are landing in the ~41% cc range, or 1pt beat vs 39-40% guide, consistent w/ recent trends (last 3 qtrs beats 200bps, 100bps, 100bps).

Further, guidance calls for “modest” accel through 1H FY27 (2H CY26), which we think suggests a baseline of ~41%/~42% cc for FQ1/FQ2.

Recall Azure added $2.5B q/q in FQ3; we est MSFT adds 1.1GW of capacity (partly incl Fairwater WI in 4Q) and over $3B of net new Azure revs in FQ4.

M365 Copilot: Checks upbeat, adoption ramping: Though less likely a NT catalyst, feedback on M365 Copilot continues to steadily improve.

Most partners this qtr cited M- HSD % adoption within their seat base, pointing to E7 as a carrot in 2H26-2027 expected to drive even greater adoption levels.

We look for at least 26M+ seats reported based on guided “more than” 5M net adds in the qtr, as highlighted in our MSFT AI deep dive, w/ potential to inflect higher as enterprise AI roadmaps mature.

Raise outyear capex to reflect updated assumptions; now est $45B/GW in FY27-28, climbing to $50B+ by FY30: MSFT’s capex guide suggests ~$115B ahead in 1H FY27 — translating to inc. capacity adds (est 4/5/6GW in FY26-FY28) & Vera Rubin cycle starting.

While we don’t expect much deviation from prev-issued CY26 capex outlook (already accounts for ~$25B cost inflation), we think cost/GW continues to rise (esp w/ VR).

Keep FY27 capex unch at $226B ($45B/GW), raise FY28 capex 13% to $278B ($46B/GW). ~2% / ~5K headcount reduction likely precursor to greater operational focus in FY27; scenario analysis suggests EPS stays >10% y/y: Reports for ~4,800 headcount reductions (primarily non-core areas such as gaming) align w/ MSFT’s prior guide for headcount declines in FY27.

We’re modeling FY27 OMs compress ~50bps driven chiefly by ~200bps ramping depreciation.

Given M-HSD% opex guide (which could also prove conservative), expect even 300bps GM compression (to ~65%) still yields DD%+ EPS growth.”

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