Investing.com -- Wolfe Research revealed in a note on Monday that it has cut its price target on Microsoft to $525 from $570, pointing to surging memory prices that have forced the firm to raise its fiscal 2027 capital expenditure estimate to $270 billion from $230 billion, while maintaining its Outperform rating.

Analyst Alex Zukin told investors that recent memory price increases, including commentary from Micron's latest earnings, led Wolfe to revise its already above-consensus capex estimates higher to account for rising component costs for AI infrastructure.

The revision pushes Wolfe's FY27 free cash flow estimate to negative $17.4 billion, compared to a prior estimate of approximately $14.7 billion positive and roughly $48 billion below the consensus of $31 billion.

Zukin also lowered his FY27 gross margin estimate to 63.1% from 64.0%, against the consensus of 66.6%, and trimmed his FY27 EPS estimate by 1% to $19.02, now 2% below consensus.

Despite the estimate cuts, Wolfe said it "remains long-term bullish on MSFT's full-stack monetization approach to AI with Azure growth acceleration and rising Agent monetization potential."

The firm forecasts Azure growth of 41% in FY27 and 40% in FY28, ahead of consensus estimates of 40% and 38%, respectively.

Zukin noted that Microsoft disclosed $11.5 billion in restricted investments related to a supplier agreement last quarter, which Wolfe believes "could reflect the company locking in a portion of component costs tied to memory," potentially offsetting some price pressure.