Microsoft’s latest quarterly report beat expectations across the board, prompting Citi to raise its price target on the company to $600 from $570 while keeping a Buy rating in a July 30 research note. Citi’s central point was straightforward: investors had spent months focusing on the cost side of AI capital spending, and this set of results showed the revenue side starting to come through.
Azure growth accelerated again, and guidance moved higher
In the quarter, Microsoft’s Intelligent Cloud revenue reached $39.3 billion, up 31% year over year and 2.6% above Citi’s forecast. Azure growth came in at 43%, ahead of the market’s 40% expectation and faster than the 39% posted in the previous quarter.
Citi attributed the result to broad operating efficiency gains, including capacity monetization from higher token throughput and better-than-expected GitHub usage-based billing. Guidance for the next quarter also surprised on the upside. Microsoft indicated Azure growth of about 45% for the first quarter, up again from 43% in the fourth quarter, while management said growth in the first half of the year should run above the second half.
Citi raised its FY27 Azure growth forecast by about 3 percentage points to 45.5%. The bank said Microsoft’s capacity allocation strategy has not changed, and that the acceleration is coming from better deployment efficiency and improved fleet utilization. In Citi’s view, the renewed Azure acceleration is structural. Capacity constraints may last into 2026, but efficiency improvements are easing supply limits.
Copilot paid seats passed 30 million as M365 Commercial Cloud picked up
Microsoft reported $37.8 billion in revenue for Productivity and Business Processes, up 14% year over year and slightly above Citi’s estimate. M365, or Microsoft 365, Commercial Cloud revenue also grew 14%. Paid Copilot seats reached 30 million, above Citi’s 28 million expectation.
The quarterly net increase was 10 million seats, double the gain in the prior quarter. Citi said the jump was driven mainly by strong fiscal year-end sales execution, along with broader adoption after large customers received discounts when deploying Copilot.
For the next quarter, Citi expects M365 Commercial Cloud growth to come in close to 15%. Excluding a 2 percentage point drag from last year’s revenue recognition adjustment, the underlying growth rate would be about 16%. Citi said E5 and Copilot remain the main drivers of ARPU growth, while E7 and Copilot Cowork are still in the early adoption stage.
The bank also raised its revenue forecasts for Productivity and Business Processes for FY27 through FY28, reflecting faster Copilot adoption and a recovery in M365 Commercial Cloud growth. In More Personal Computing, revenue came in at $12.9 billion, down 5% year over year, but still 7% above Citi’s estimate. Search partly offset weakness in Windows OEM and Xbox.
Citi described a reinforcing loop between the two major AI businesses. If Copilot adoption expands, Azure compute has a clearer commercial outlet. As AI workloads rise, Azure consumption also increases.
Margins beat expectations, while capex forecasts were revised
Adjusted earnings per share for the quarter came in at $4.81, well above the consensus estimate of $4.21. Gross margin was 67.2%, down 1 percentage point from a year earlier but 82 basis points above Citi’s forecast. Total operating margin was 45.1%, roughly flat year over year and 62 basis points above Citi’s estimate.
Citi said Intelligent Cloud operating margin improved sequentially to above 40%, a sign that scale benefits in the cloud business are being released more quickly.
On capital spending, cash capex was $35.8 billion, above Citi’s $31.5 billion estimate. Total capex including finance leases was $41.0 billion, slightly below expectations. Citi cut its FY27 total capex forecast by about 9% to $237.0 billion, citing the effect of accounting rule changes rather than a shift in actual investment intensity.
Citi’s $600 target rests on stronger AI monetization
Citi’s new $600 target price implies about 26 times FY28 earnings per share. Based on the current share price of $390 cited in the note, that points to roughly 54% upside. Citi said that valuation is justified because Microsoft’s growth is re-accelerating and its AI leadership is still not fully reflected in the stock.
The note also said the $600 target is built on an assumption of roughly $24 in FY28 EPS. Citi’s core thesis is that Azure’s renewed acceleration and Copilot’s rapid seat expansion are happening at the same time, while AI contribution is growing and operating efficiency is improving. In that reading, the market is no longer seeing only the burden of capital spending. It is starting to see the payoff in revenue and profit.
Report note
This article is based on a整理 and interpretation of Citi Research’s July 30, 2026 report, combined with public market information referenced in the source material. The ratings, price target, earnings forecasts, and related judgments cited here are the views of the brokerage analysts and represent their institution’s position, not investment advice.
The source material also stated that markets carry risk, decisions should be made independently, and the report should not be used as the basis for buying or selling any security.
