MSFT - Memory Raises Capex, Lowers FCF and Margins, But Worth It in the End

Research evidence excerpt

MSFT - Memory Raises Capex, Lowers FCF and Margins, But Worth It in the End

Enterprise Software

Enterprise Software - Market Overweight

MICROSOFT CORPORATION (MSFT) July 5, 2026

MSFT - Memory Raises Capex, Lowers FCF and Margins, Rating:

But Worth It in the End Outperform

Price:

$390.49

The Wolfe Byte Price Target:

Recent memory price increases have led us to raise our MSFT FY27 Capex $525

Prior: $570estimates ($270B vs. $230B prior), and correspondingly decrease FY27 % Upside:

profitability estimates, as we now estimate MSFT having negative FCF in FY27. 34.4%

Reiterate OP and decrease PT to $525 (vs. $570 prior). View MSFT Model

View Comp Table

Recent news on memory pricing, including MU's latest earnings commentary (covered Company Information

by Wolfe Research semis analyst Chris Caso), has led us to raise (our already above 52-Week Range $353 - $542

$2,900,729 Cap. (MM)consensus) MSFT Capex estimates as we account for higher component costs for Market $2,954,358 Enterprise Value (MM)

AI infrastructure. The revisions lower our gross margin, EPS, and FCF estimates, but Shares Out. (MM) 7,428.4

we continue to view MSFT's valuation as attractive ahead of F4Q26 results. Avg. Value Traded (MM) $16,432.80

SI% of Float 1.3%

On the back of memory price increases, we update our model, decreasing total EV/ Revenue 12.4x

EV/ FCF 49.4x

FY27 gross margins to 63.1% (vs. 64.0% prior) vs consensus of 66.6%, driven by Price to Earnings 35x

increases in Capex, taking our FY27 Capex to $270B (vs. $230B prior). Our FY27

EPS estimate decrease by 1% to $19.02 (vs. $19.28 prior), 2% below consensus. 600

550Importantly, we now estimate FY27 FCF to be negative, impacted by our $40B

increase to FY27 Capex, and now model FY27 FCF of -$17.4B (vs. ~$14.7B prior), 500