UBS recently revised its price target for Microsoft Corporation (NASDAQ: MSFT) from $650 to $600 while maintaining a Buy recommendation on the stock. Currently, Microsoft shares trade at $464.98 with a price-to-earnings (P/E) ratio of 32.87, a figure considered elevated relative to the company’s near-term earnings growth projections according to InvestingPro data.
The decision to lower the price forecast follows what UBS describes as an "evident de-rating" affecting the broader software sector, compelling the firm to recalibrate its valuation multiples for Microsoft. The new price target is derived from a free cash flow multiple of 47 times anticipated in the calendar year 2027, down from the previous 50 times multiple. UBS still regards this valuation as a "deserved premium to the peer group," underlining Microsoft’s relative strength.
Despite this downward adjustment, UBS remains optimistic regarding growth potential in Microsoft’s cloud platform, Azure. The firm highlights ongoing development in Microsoft’s Fairwater AI data centers, specifically the facility in Atlanta which commenced operations in October, and another in Wisconsin scheduled to be operational in the first quarter of 2026.
Investors are set to watch Microsoft’s Q2 financial results, expected January 28, 2026, for further clarity on operational performance and the trajectory of Azure’s expansion.
Additional recent developments emphasize Microsoft's strategic momentum. The company secured a $170 million contract with the U.S. Department of War to supply Azure cloud services to the Air Force’s Cloud One Program, reinforcing Microsoft’s growing footprint within federal government cloud solutions.
Furthermore, Microsoft has forged a major sponsorship agreement with the Mercedes Formula One racing team, with the technology giant’s branding prominently displayed on the new W17 vehicle. While financial specifics remain undisclosed, external estimates project the deal's value at approximately $60 million per year.
From a broader equity research perspective, KeyBanc Capital Markets has reiterated an Overweight rating on Microsoft with a target price of $630, attributing this stance to robust enterprise demand for Azure services. Likewise, Jefferies continues to endorse Microsoft as a Buy with a $675 target, highlighting ongoing investments in artificial intelligence despite a recent dip in the company’s stock price.
These analyst positions reflect sustained confidence in Microsoft’s strategic roadmap and market opportunities, notwithstanding sector-wide valuation pressures.
Overall, the adjustments and ongoing evaluations spotlight critical themes in software sector dynamics, cloud infrastructure growth, government contracting, and marketing partnerships within global competitive landscapes.
UBS has adjusted its price target for Microsoft to $600, down from $650, citing a general valuation decline across the software industry. Although the target has been reduced, the firm retains a Buy rating and acknowledges Microsoft's premium positioning relative to its peers. Optimism around Azure's expansion continues, supported by new Fairwater AI data centers and significant government contracts. Other analysts maintain positive outlooks with higher price targets, reflecting confidence in Microsoft's enterprise demand and AI investments.
Key Points
- UBS lowers Microsoft price target to $600 due to broad valuation decreases in the software sector but retains Buy rating.
- Growth optimism centers on Microsoft Azure with new Fairwater AI data centers and upcoming financial results due January 28, 2026.
- Microsoft expands government cloud contracts and signs a high-profile sponsorship deal with Mercedes Formula One, underpinning strategic growth initiatives.
Risks
- The software sector's evident de-rating introduces valuation headwinds affecting Microsoft and its peers.
- Stock valuations may face pressure if Microsoft’s Azure growth or AI investments do not meet market expectations.
- Uncertainties tied to the timing and success of new data center operations and government contract implementations could impact financial outcomes.