Microsoft (MSFT) Price Target Lowered at Stifel on Margin Pressure Concerns

Microsoft Corporation (NASDAQ:MSFT) is one of the AI Stocks in Focus on Wall Street. On January 26, Stifel analyst Brad Reback lowered the price target on the stock to $520.00 (from $640.00) while maintaining a Buy rating. The rating affirmation comes ahead of MSFT’s earnings report, with the firm citing near-term expense pressures limiting margin upside.

Stifel anticipates Microsoft to exceed expectations for Azure cloud services growth by an estimated 200 basis points, reaching 39% growth on a constant currency basis. This is supported by factors such as a solid macro backdrop, continued rapid OpenAI usage growth, and management’s commentary that demand still exceeds Azure supply.

Looking ahead, even though 3Q26 represents a tougher year-over-year comparison for Azure, recent data center capacity expansions should allow Microsoft to post a similar level of incremental sequential adds as 3Q25. This will likely lead to an estimated 38% year-over-year constant currency growth guide, including a degree of conservatism.

The firm anticipates operating margin pressure throughout FY26 as gross margins compress and operating expenses rise for “high-priced AI professionals (salary/compute)”

Net/net, we believe for the stock to effectively re-rate in coming quarters, the company must get to a point where Azure growth meaningfully outpaces Capex growth rates (hopefully FY27).

Microsoft Corporation (NASDAQ:MSFT) provides AI-powered cloud, productivity, and business solutions, focusing on efficiency, security, and AI advancements.

While we acknowledge the potential of MSFT as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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