Citi's recent note to clients highlights a positive shift in expectations for Microsoft's Copilot, suggesting that adoption is gaining traction and customer feedback is improving. Analysts anticipate a strong fiscal Q4 2026 and continued growth into fiscal 2027, which they believe will drive overall revenue and earnings per share growth through fiscal 2030.
They have raised their estimates for Copilot, projecting an increase in net additions to Microsoft 365 Copilot users from 5 million in Q3 to 8 million. Despite this optimistic view, Jim Cramer expressed skepticism on CNBC, noting that it contradicts the widespread belief that Copilot has underperformed.
Microsoft's stock rose over 3% following Citi's report, although it remains down 18% year-to-date, significantly lagging behind the S&P 500's 10% gain. Citi has maintained a buy rating on Microsoft but lowered its price target from $620 to $570, citing concerns over multiple compression in the enterprise software sector.
The broader market remains cautious, particularly in light of IBM's recent struggles and Starbucks' plans to cut software costs by developing in-house applications. Overall, while Citi's endorsement of Copilot is a positive signal, the market's apprehension about AI disruption and Microsoft's reliance on OpenAI for Azure growth continues to weigh on investor sentiment