UBS lowered its price target on Microsoft (NASDAQ: MSFT) to $600 from $650 while reiterating a Buy rating, citing sector-wide valuation compression despite improving near-term fundamentals.

The firm identified the continued ramp-up of Microsoft's large Fairwater AI data centers as a key near-term driver of Azure growth. UBS noted that the Atlanta Fairwater facility became operational in October, while the Wisconsin site is expected to go live in the first quarter of 2026. The analysts referenced a mid-December site visit to the Wisconsin facility by a member of the UBS Software coverage team, which informed their updated outlook.

Based on progress observed at the Fairwater sites, UBS said it raised its Azure growth estimates ahead of Microsoft's fiscal second-quarter December earnings report scheduled for January 28. Despite the improved growth outlook, UBS reduced its price target to reflect broader multiple compression across the software sector.

The revised target was based on an assumed calendar-year 2027 free cash flow multiple of 47 times, down from 50 times previously, which UBS said still represents a justified premium relative to peers given Microsoft's scale, AI positioning, and cloud leadership.