Citi’s bullish Copilot note clashes with Cramer’s Microsoft worries

Citi gave Microsoft investors a more optimistic read on Copilot just as software stocks face pressure from fears that artificial intelligence could weaken their core businesses. The call matters for retail investors because Microsoft’s valuation now depends heavily on proving that AI is adding durable revenue, not just adding costs.

In a client note Wednesday, Citi analysts said they expect Microsoft to post a strong fiscal 2026 fourth quarter and said momentum could carry into fiscal 2027 from Copilot and Azure, the company’s cloud-computing unit. Microsoft is scheduled to report fiscal fourth-quarter earnings after the market closes on July 29.

Copilot is Microsoft’s AI assistant built into products such as Microsoft 365. Citi said its industry checks showed stronger adoption and better customer feedback as more advanced features enter the Copilot suite.

The bank raised its Copilot estimates, saying it expects Microsoft 365 Copilot net additions of 8 million, compared with 5 million in the third quarter. Citi also said the product could show a higher-than-usual payback period, a measure investors use to judge how quickly a company recovers the money it spends to win or support customers.

Jim Cramer said on CNBC that he was surprised by Citi’s view because it differed sharply from the negative feedback he said he has heard about Copilot. Cramer described the note as an “against-the-grain view” and said the positive Copilot comments ran counter to his own understanding of the product’s reputation.

Cramer was more receptive to Citi’s comments on Azure, according to CNBC. Azure has been central to Microsoft’s AI story because companies use cloud platforms to rent computing power for software, data storage and AI workloads.

Microsoft stock is still trailing the market

Microsoft shares rose more than 3% on Wednesday, bringing their July gain to 6%, according to CNBC. The stock has had only three down sessions so far this month.

The recent bounce has not erased a difficult year. CNBC reported that Microsoft shares remain down 18% year to date, while the S&P 500 is up more than 10% over the same period. The stock is also about 27% below its record close of just over $542 in late October 2025.

Citi kept a buy rating on Microsoft but lowered its price target to $570 from $620. The bank cited multiple compression in enterprise software, which means investors are paying lower prices relative to expected earnings for companies in the sector.

That pressure has spread beyond Microsoft. CNBC reported that Salesforce, another stock held by Jim Cramer’s Charitable Trust, is down 36% this year as investors question how AI could reshape software spending. IBM also weighed on the group after preannouncing trouble in its software business, CNBC said, sending its shares down 25% Tuesday and another 1% Wednesday.

Bloomberg reported last week that Starbucks is trying to reduce the $400 million it pays Microsoft and IBM each year for software tools by replacing some of them with applications developed in-house using AI. That kind of move is part of the broader investor concern that AI may let customers spend less on traditional software vendors.

Microsoft also faces questions about how much of Azure’s growth depends on OpenAI and whether cloud capacity limits have held back demand, according to CNBC. At the same time, Microsoft, Amazon and Alphabet are collectively committing about $575 billion this year to AI infrastructure, on top of earlier spending on AI capabilities.

For Microsoft, Citi’s Copilot call puts a clear marker on the next few earnings reports: investors will be watching whether the company can show that AI tools are gaining real customer traction while Azure continues to grow.

This story draws on original reporting from CNBC.