Citi issued a research note on Wednesday raising its adoption estimates for Microsoft's Copilot AI assistant and forecasting strong performance for the company's fiscal 2026 fourth quarter. The analysts expect momentum to build into fiscal 2027 from Copilot and Azure cloud, with the improving foundation ultimately driving accelerating overall revenue and earnings growth through fiscal 2030. Microsoft is scheduled to report fiscal Q4 earnings after the market close on July 29. Citi based its upgraded outlook on industry checks that picked up notably stronger Copilot adoption momentum and improving customer feedback as more advanced IQ offerings start to work into the Copilot suite. The positive assessment stands in contrast to widespread criticism of Copilot's performance, with CNBC's Jim Cramer describing Citi's view as against-the-grain and contrary to feedback he has been hearing about the product being subpar.
Citi Raises Microsoft Copilot Adoption Estimates Ahead of Earnings
Citi analysts told clients they expect higher than typical upside payback period with increasing Microsoft 365 Copilot net adds of +8 million versus +5 million in Q3. The firm maintained its buy rating on Microsoft stocks while cutting its price target to $570 from $620, citing multiple compression in enterprise software. Cramer stated he was pleased to see that Citi thinks Azure is doing well, finding the analysts' commentary around Azure reassuring despite his skepticism about the Copilot assessment.
Microsoft Stocks Rise 3% on Wednesday Amid Year-to-Date Decline
Microsoft stocks rose more than 3% on Wednesday, extending month-to-date gains to 6%. The stock has had only three negative sessions in July. Despite this recent bounce, shares are down 18% year to date, drastically underperforming the S&P 500's more than 10% advance over the same stretch. The stock is down approximately 27% from its record close of just over $542 in late October 2025.
Enterprise Software Sector Faces AI Disruption Concerns
The enterprise software group, including Microsoft, has been under pressure this year on concerns of AI disruption. Fellow software company Salesforce has plunged 36% year to date for the same reason. IBM preannounced troubles in its software business, which caused its stock to drop 25% on Tuesday and another 1% on Wednesday. Last week, Bloomberg reported that Starbucks is looking to reduce the $400 million it pays Microsoft and IBM per year for software tools by replacing them with in-house developed applications with the help of AI.
Microsoft Faces Questions on OpenAI Reliance and Azure Capacity
Microsoft stocks have been under pressure due to questions about its reliance on OpenAI for Azure growth. The market has also wondered whether Microsoft was leaving Azure growth on the table as it ran into capacity constraints. Microsoft and its cloud rivals Amazon and Alphabet are committing approximately $575 billion collectively this year on AI infrastructure, on top of the hundreds of billions of dollars they have already invested in building out their AI capabilities.
FAQ
What did Citi analysts say about Microsoft Copilot on Wednesday?
Citi analysts issued a research note on Wednesday raising their adoption estimates for Microsoft Copilot, expecting higher than typical upside payback period with increasing Microsoft 365 Copilot net adds of +8 million versus +5 million in Q3. They based this outlook on industry checks that picked up notably stronger Copilot adoption momentum and improving customer feedback.
When does Microsoft report its fiscal Q4 earnings?
Microsoft is scheduled to report fiscal Q4 earnings after the market close on July 29.
How much are Microsoft, Amazon, and Alphabet spending on AI infrastructure this year?
Microsoft and its cloud rivals Amazon and Alphabet are committing approximately $575 billion collectively this year on AI infrastructure, on top of the hundreds of billions of dollars they have already invested in building out their AI capabilities.
