Key Takeaways:
- Citi Research lowered its Microsoft price target while keeping a positive rating
- Microsoft shares have fallen 20% year to date to around $392
- The firm cited intensifying AI capital expenditure in fiscal 2027 as the reason
Back
Citi cuts Microsoft price target as $190B AI spend looms
Citi Research lowered its price target on Microsoft Corp. while maintaining a positive rating, telling investors to brace for intensifying artificial intelligence spending in fiscal 2027.
"Investors should brace themselves for intensifying AI spending in fiscal 2027," the Citi Research analyst said, according to a report published Wednesday.
Microsoft shares have fallen 20% year to date to about $392, near their 52-week low of $349.20. The stock trades at roughly 21 times forward earnings of $18.89, well below the 10-year average multiple for the software giant. The company's market capitalization has declined by hundreds of billions of dollars this year even as its AI business surpassed $37 billion in annualized revenue, up 123% from a year earlier.
The price target cut reflects a growing concern on Wall Street about the cost of Microsoft's AI infrastructure buildout. Chief Executive Officer Satya Nadella has guided to roughly $190 billion in capital expenditures for calendar year 2026, up from about $110 billion in 2025. The spending surge has compressed free cash flow to $15.8 billion in the most recent quarter, down 10% from a year earlier, even as Microsoft Cloud revenue reached $54 billion, up 29%.
The rating remains positive, with Citi joining 54 other analysts who rate the stock a buy or strong buy, according to consensus data. The average analyst price target stands at $559.86, implying about 43% upside from current levels. Microsoft's commercial remaining performance obligations nearly doubled to $627 billion, suggesting customer demand can absorb the spending increase over time.
The lowered target puts additional pressure on Microsoft's upcoming earnings report, expected in late July. Investors will watch whether Azure can sustain its 39% to 40% growth rate and whether Copilot seat additions — which rose 250% year over year — are converting into durable revenue. The stock's next catalyst is the fiscal fourth-quarter earnings call, where management is expected to provide updated fiscal 2027 guidance.
This article is for informational purposes only and does not constitute investment advice.
