Citi stepped up to the plate on Wednesday, going to bat for Microsoft ‘s much-maligned Copilot artificial intelligence assistant. Jim Cramer said he was stunned by the research. In a note to clients, Citi analysts said they expect a strong fiscal 2026 fourth quarter, with momentum building into fiscal 2027 from its Copilot and Azure cloud. They said that improving foundation should “ultimately drive accelerating overall revenue/EPS growth through” fiscal 2030. Based on industry checks, Citi said, “We picked up notable stronger Copilot adoption momentum and improving feedback from customers as more advanced IQ offering starts to work into the Copilot suite.” As a result, the analysts are raising their Copilot estimates. “We expect higher than typical upside PBP [payback period] with increasing M365 Copilot net adds of +8M vs +5M in Q3.” Microsoft reports fiscal Q4 earnings after the market close on July 29. “Citi has an against-the-grain view” on Copilot, Jim said on CNBC, adding that reading the note was like reading a page out of “Alice in Wonderland.” He added that Citi’s optimism is contrary to everything he has been hearing about Copilot being subpar. “To hear the Copilot’s better? I mean, I don’t know about you, but I’d rather fly without a Copilot.” Jim was, however, pleased to see that Citi thinks Azure is doing well. Microsoft stock rose more than 3% on Wednesday, extending its month-to-date gains to 6%. It 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 some 27% from its record close of just over $542 in late October 2025. MSFT 1Y mountain Microsoft 1-year performance While maintaining its buy rating, Citi recognized the deterioration in Microsoft stock — cutting its price target to $570 from $620, citing multiple compression in enterprise software. The group, including Microsoft, has been crushed this year on concerns of AI disruption. Fellow Club stock Salesforce has been ravaged even more severely — plunging 36% year to date for the same reason. It’s a worry crystallized by IBM ‘s preannouncement of troubles in its software business, which crushed the stock by 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. While the “AI is eating software” worries won’t go away overnight, one way for Microsoft to push back on these fears is showing meaningful and sustained traction in Copilot. Microsoft stock has also been under pressure due to questions about its reliance on OpenAI for Azure growth. At the same time, the market has wondered whether Microsoft was leaving Azure growth on the table as it ran into capacity constraints. While there is no denying that Azure is a juggernaut, there has been no room for error when Microsoft and its cloud rivals Amazon and Alphabet are committing to some $575 billion collectively this year on AI infrastructure. That’s on top of the hundreds of billions of dollars they have already invested in building out their AI capabilities. Add it all up, and we remain cautious on Microsoft stock. While scratching his head on Citi’s Copilot take, Jim found the analysts’ commentary around Azure reassuring. For an update on Microsoft, and the rest of the Investing Club portfolio, tune in to our July Monthly Meeting livestream at noon ET on Thursday. (Jim Cramer’s Charitable Trust is long MSFT and CRM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
