Microsoft has not been an easy stock to own in 2026. It’s down more than 20% year to date and nearly 23% over the past year, a run that’s frustrated a lot of investors who expected the company’s AI push to show up in the share price by now. The spending has been enormous, Azure has kept growing, and the stock has moved in the wrong direction anyway.
July 15 brought another piece of news for Microsoft holders. Citi cut its price target on the stock from $620 to $570. The Buy rating stayed in place, and the bank said it still expects a strong fourth quarter. But a lower target is a lower target, and it’s worth understanding exactly what’s behind it and what it means for the months ahead.
Why Citi lowered the target and what it actually means
Citi’s cut had less to do with Microsoft specifically and more to do with where software stocks are trading broadly. Valuations across the software sector have come in, and Citi adjusted its price target to reflect current multiples rather than the higher ones baked into its prior estimate, Seeking Alpha reported. The bank said its view of Microsoft’s business didn’t change.
The product checks Citi ran before publishing its note actually came back positive. Copilot adoption looks healthy, and the bank thinks Microsoft is in good shape to capture demand as companies start optimizing how much they spend on AI tokens. Citi maintained its Buy rating and said it expects fiscal Q4 results to be solid when Microsoft reports on July 29, 247 Wall St. reported.
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Citi wasn’t the only one moving on Microsoft that day. Mizuho’s Gregg Moskowitz brought his target down to $490 from $515 too, though he held his Outperform rating and said his checks on software broadly were good, with AI adoption looking strong. Wells Fargo was a bit more cautious.
The firm kept its $625 target but said the Q4 setup looked mixed to them, with cloud market share and the pace of capital spending both raising questions. None of it has shaken the broader analyst community much. FactSet shows 54 Buy ratings on the stock, 3 Holds, and not a single Sell.
What the July 29 earnings report needs to deliver
Microsoft is scheduled to report fiscal Q4 results on July 29 after market close. Analysts are looking for $4.24 per share in earnings and $86.66 billion in revenue, based on consensus estimates from Fiscal AI and Koyfin. Azure growth numbers and commentary on operating margins will get the most attention.
Citi says Q4 should be solid. But the bank flagged that the period immediately after matters just as much. Heading into fiscal 2027, Citi expects Microsoft to guide cautiously on operating margins and signal another step-up in capital spending in Q1. Investors will have to decide how much patience they have for that. The Q4 print itself may land fine. What management says about the next 12 months is the harder question.
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How much Microsoft is spending and why it weighs on the stock
Microsoft spent $30.88 billion on capital expenditures in its fiscal third quarter, up 84.4% from the same period last year. Forbes has estimated total 2026 capex across the full fiscal year at roughly $190 billion. Data centers, AI infrastructure, and the compute capacity needed to run Azure at scale are where most of that money is going.
Heavy spending like this tends to compress margins and slow down free cash flow growth in the short run, and that’s part of why the stock has struggled even as the underlying business has been expanding. Bernstein’s mid-year CIO survey showed strong IT budget growth in 2026, which supports the demand side of the Azure story. But Wells Fargo’s cloud market share concern suggests Microsoft also needs to show it’s winning customers alongside building capacity. Guidance on July 29 will tell investors which of those things is true.
Where the stock stands and what investors are watching
Microsoft was trading around $397 on July 15. Citi’s $570 target would put the stock about 43% above that price. The cut brought the target closer to where the FactSet analyst mean sits, which is $557.28. So Citi’s new number is slightly above the consensus, not below it.
Over a year of underperformance has tested a lot of Microsoft investors. The spending kept going up, the stock kept going sideways or down, and the AI returns everyone was waiting for haven’t fully shown up in the numbers yet. The analyst community has largely stayed patient. No one has a Sell on the stock. Most still think Azure acceleration and AI monetization will eventually close the gap between what Microsoft is spending and what investors are getting for it.
July 29 is when that story either starts to get confirmed or gets harder to tell. If Azure growth comes in strong and guidance holds up, the stock has a clear path to recovering some of what it’s lost this year. If the margin guidance disappoints or Azure misses, the target cuts probably keep coming.
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