Microsoft Faces Tariff Uncertainty: Analysts Warn of Deal Delays and Earnings Impact

Microsoft, the tech giant based in Redmond, Washington, is at the center of a storm as ongoing tariff disputes and potential delays in enterprise spending threaten to disrupt its cloud and AI initiatives. Analysts are warning of significant near-term uncertainty, which could push out deals and projects into the September and December quarters, affecting Microsoft's cloud business and Office 365/Windows ecosystem, crucial for growth and margins in 2026.

The tariff-driven uncertainty is expected to impact Microsoft's financial performance and market position. Wedbush analyst Daniel Ives has reiterated the Outperform rating on Microsoft, lowering the price forecast to $475 from $550. Ives explained that despite President Donald Trump’s 90-day pause on tariffs for certain countries, companies that are reliant on Chinese supply chains or cost inputs are still vulnerable. He estimates that around 10% to 15% of U.S. cloud and AI initiatives could be delayed or slowed during this period of heightened uncertainty.

Microsoft has already paused discussions and postponed the development of sites in several regions, including Indonesia, the U.K., Australia, Illinois, North Dakota, and Wisconsin. This move indicates a strategic adjustment in response to the tariff environment and potential overcapacity in AI computing. TD Cowen analysts highlighted that Microsoft has walked away from data center projects in the US and Europe to the tune of 2GW, signaling a potential oversupply relative to current demand forecasts.

The tariff-driven uncertainty is also expected to affect enterprise spending, with investors likely to look beyond the June results, viewing this quarter as a mulligan for the Redmond, California-based company and the broader tech sector. Ives lowered the FY25 Pro-forma EPS estimate to $12.89 from $13.19 and for FY26, the analyst lowered Pro-forma EPS estimate to $14.40 from $15.09, reflecting the potential impact of tariffs on Microsoft's financial performance.

Despite the challenges, Microsoft remains committed to growing strongly in all regions. The company has returned $9.7 billion to shareholders in the form of dividends and share repurchases in the second quarter of fiscal year 2025. Microsoft's strong financial position, with a market cap of $2.9 trillion, allows it to weather short-term disruptions and invest in long-term growth opportunities.

In conclusion, Microsoft can mitigate the risks associated with tariff-driven uncertainty by diversifying its supply chain, investing in domestic manufacturing, innovating and developing new products, adjusting its pricing and marketing strategies, and leveraging its strong financial position. These adjustments could have a positive impact on Microsoft's financial performance and market position in the long term.