All Eyes on Microsoft Stock Ahead of Earnings; Here's What Citi Expects

Business Insider

3 days ago

Microsoft (NASDAQ:MSFT) stock has been one of the strongest performers among the Magnificent 7 this year, driven by investors' confidence in the company's AI positioning. That optimism will be put to the test tomorrow when the tech giant reports its latest quarterly results after the market closes.
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Citi's Tyler Radke is among those expecting a solid showing. The analyst believes the setup points to 'another strong quarter of positive revisions and upside to Q4+Q1 Azure numbers.' His conviction is rooted in a proprietary reseller survey (conducted alongside Citi's Research Innovation Lab), which revealed strong end-of-quarter trends and upbeat channel feedback.
According to the survey, both trailing and forward twelve‑month growth rates rebounded to the high-teens year-over-year, marking a record pace. Resellers also reported one of their best quota achievement rates in recent years, with Azure AI standing out as the 'top driver of growth.' Customer and partner feedback throughout the quarter was equally optimistic, citing robust E5 expansions and a number of significant M365 CoPilot deals, though there were some signs of a slower overall pace in larger transactions.
With those positive trends in tow, Radke anticipates at least 'modest beats' of one to two points across most top-line KPIs, particularly Azure consumption, which could see a 'slight reacceleration' to 36–37% YoYcc in FQ4. However, the analyst cautions that the upside may be somewhat muted compared to last quarter, given Q3's 'one-time capacity ramps.' Still, profitability is expected to tick higher, especially in the guidance, helped by recent workforce reductions.
Looking ahead to F1Q, Radke forecasts Azure growth holding steady near 36%, slightly ahead of consensus, while FY26 CapEx guidance is likely to reflect ongoing investment discipline. In fact, the analyst has nudged his FY26 CapEx estimate up to $97 billion, representing about 11% y/y growth, which he believes will fuel a faster Azure and AI revenue ramp. His FY26 Azure growth forecast stands at 36%cc or higher, outpacing the 33.1% consensus.
Beyond Azure, Radke also sees strength in other key segments: Productivity and Business Processes (PBP) gets a boost from Dynamics, while More Personal Computing (MPC) is riding a healthier recovery in the commercial PC market.
Summing up his view, Radke called Microsoft stock his 'top pick,' citing its unmatched AI exposure, durable business model, and exceptional long-term pricing and margin power.
Ahead of the print, Radke assigns MSFT a Buy rating and Street-high $613 price target, implying a potential 12-month return of ~20%. (To watch Radke's track record, click here)
Elsewhere on the Street, sentiment remains bullish. With 30 additional Buy ratings and only 3 Holds, the consensus view stands at Strong Buy. Based on the $558.71 average price target, Microsoft shares are projected to climb another 9% over the coming year. (See MSFT stock forecast)
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