Melius Research sees Microsoft ‘s free cash fall taking a dip in the near term. The research firm downgraded the “Magnificent Seven” giant to a hold rating. Analyst Ben Reitzes also lowered his price target to $430, implying that shares could add 7%. Microsoft stock has slipped 2% over the past 12 months and 17% on the year. MSFT 1Y mountain MSFT 1Y chart Reitzes sees a good chance that Microsoft’s free cash flow falls versus Wall Street’s estimates, while its subscription business also starts to miss. The analyst believes that Microsoft’s decreased free cash flow will make it look much less attractive in comparison to its competitors. “Given the free cash flow shortage, one could argue equity values for these stocks are nothing more than ‘vibes’ on AI prospects that hinge on what stronger free cash flow may look like in the 2030’s,” he wrote. “We may be only in the early stages of this investor aversion to ‘vibes’ that puts the premium back on free cash flow. That’s why we’ve kept buys on AI semis and select hardware names like Apple that all directly benefit from other people’s spending — and generate a ton of cash.” Reitzes also criticized how slowly the company seems to be moving on Copilot, its AI-powered assistant. The analyst wrote that he was “floored” that Copilot only has 15 million paid users after three years of promotion. “Anthropic developed Cowork in 10 days and most think it works better with Excel and other plug-ins vs. Copilot,” he said. “Due to things like Cowork from Anthropic, Microsoft’s powerful 365 suite could see challenges and may need to give Copilot away just to stay relevant — hurting growth and margins in its most profitable Productivity segment. This reality will consume internal capacity of Azure, limiting beats there too.” The analyst added that he was “perplexed” Microsoft did not increase its capital expenditures for the year. This will put a damper on Azure, Microsoft’s cloud computing platform, he said.
