Stifel just lowered price target on Microsoft stock: find out more

Microsoft MSFT shares inched lower and printed a fresh 52-week low this morning after a senior Stifel analyst, Brad Reback, lowered his price target on the tech behemoth to $400.

As sentiment shifts from blind AI enthusiasm to cold financial scrutiny, MSFT’s relative strength index (RSI) has crashed into the late 20s, indicating “oversold” conditions that often trigger a near-term reversal.

Still, Reback recommends some caution in playing Microsoft stock that’s already down more than 25% year-to-date.  

Why Stifel lowered its price target on Microsoft stock

In his research note, Reback argued the current consensus estimates for Microsoft are “somewhat” ignoring the potential for severe margin compression ahead.

“Severe costs associated with running and scaling Azure’s rapid growth will create unprecedented friction,” he told clients.

According to the Stifel analyst, MSFT’s gross margins (2027) could shrink by 450 basis points on a year-over-year basis to about 63%, significantly below Street’s optimistic consensus of 66.5%.

This dramatic contraction is almost entirely structural – driven by explosive capex and subsequent heavy depreciation costs of building, cooling, and maintaining specialized AI data centers.

Note that MSFT shares are currently trading decisively below their major moving averages (MAs), reinforcing that bears remain firmly in control.

What could drive MSFT shares lower from here

Stifel trimmed its price objective on Microsoft shares also because it believes the consensus EPS estimates for FY27 are inflated by a full dollar.

Wall Street currently expects the titan’s full-year per-share earnings to come in at $19.45, a number analyst Brad Reback sees as highly unrealistic given its surging finance lease obligations and upper single-digit operating expense growth.

This structural expenditure leaves very little room for traditional enterprise cost-cutting measures to balance the scales.

Plus, he also highlighted a continuous decline in organic free cash flow as a major corporate red flag.

If FCF fails to rebound in FY27, Microsoft’s historical flexibility to “aggressively” fund growing shareholder dividends and execute massive share buyback plans will face restrictive boundaries – the analyst added.

How to play Microsoft Corp at current levels

All in all, Stifel’s research report perfectly encapsulates a broader, sector-wide realignment hitting the entire technology architecture space.

The market is aggressively transitionary; investors are no longer content with magnificent top-line annualized AI run rates (such as Microsoft's recent $37 billion (approx. £28 billion) metric) if it requires tracking toward an astronomical $190 billion (approx. £143.8 billion) in annual capital spending to secure it.

As capex intensity across the enterprise software sector balloons, Wall Street is enforcing a stricter valuation discipline, punishing firms whose near-term cash return profiles are being swallowed by multi-year infrastructure cycles.

For MSFT stock, breaking out of this bearish cycle will require proving to a newly skeptical market that its heavily funded Copilot and Azure AI products can efficiently convert into highly profitable, high-margin software recurring revenue rather than remaining capital-guzzling utilities.