Wells Fargo: Microsoft expands voluntary departure program, potentially cushioning fiscal 2027 margins

How many people does the new departure program cover?

Microsoft’s voluntary departure program is offered to approximately 60 thousand employees in certain divisions in the United States, United Kingdom, Canada and India, equivalent to approximately 27% of the company’s 223 thousand employees at the end of June 2026.
This is the third consecutive quarter in which Microsoft has taken personnel efficiency measures: an earlier voluntary departure program in April reduced headcount by approximately 2500, and layoffs in July affected 4800 people, primarily in the Xbox division. Wells Fargo believes the latest program appears larger in scale.

Wells Fargo assumes that one-third of invited employees accept the offer, with approximately 19.8 thousand people leaving, or 8.9% of the total workforce. Based on Microsoft’s median employee compensation of approximately $215 thousand, it estimates annualized cost savings of approximately $4.3 billion.
The bank expects Microsoft’s combined operating expenses and cost of revenue to total approximately $211.5 billion in fiscal 2027; the annualized savings above represent approximately 2% of that cost base. If savings begin to materialize on 1 January 2027 and cover half of the fiscal year, the operating margin would benefit by approximately 1 percentage point.

Wells Fargo believes improved personnel efficiency can offset depreciation and amortization pressure and support Microsoft’s commitments to positive free cash flow and an operating margin decline of less than 1 percentage point in fiscal 2027.
AI infrastructure is costly to build and is affecting near-term free cash flow; investments in Azure and OpenAI also present a risk of margin pressure. Wells Fargo nevertheless believes growth in cloud and AI, returns on multiyear investments, and the broad potential for AI and Copilot adoption support the company’s continued investment.

Wells Fargo rates Microsoft overweight with a $725 price target, based on approximately 30 times the bank’s earnings forecast for the next 12 months; the report lists the share price on 26 October 2026 as $532.60.
As the AI capital expenditure cycle continues to affect free cash flow valuation multiples, the bank currently places greater emphasis on the price-to-earnings ratio and bases its valuation on the scale, durability and long-term growth of the business.