Microsoft is expected to see accelerated growth in its Azure cloud business as its Fairwater AI data centers ramp up operations this year, according to a new research note from UBS.

UBS analyst Karl Keirstead said industry checks with partners indicated no significant delays in the Fairwater rollout. The Wisconsin-based facilities began coming online in phases last year and are projected to reach 500 megawatts of capacity by mid-2026, significantly expanding Microsoft’s AI computing infrastructure.

UBS raised its forecast for Azure revenue growth in the June 2026 quarter to 37%, up from 35%, citing the large volume of GPU capacity scheduled to come online. The firm also noted that continued infrastructure investments could push Wall Street estimates for Microsoft’s fiscal 2027 capital expenditures higher.

Despite the stronger near-term growth outlook, UBS lowered its price target on Microsoft to $600 from $650, while maintaining a Buy rating. The bank said Azure remains Microsoft’s primary growth engine, supported by rapidly increasing enterprise adoption of AI-driven tools and services.

Microsoft is set to report its fiscal second-quarter earnings on Jan. 28, which should provide investors with a clearer view of the early impact of the Fairwater expansion on the company’s cloud and AI business.