City will be at bat on Wednesday with Microsoft’s much-maligned artificial intelligence assistant CoPilot. Jim Cramer said he was appalled by the study. Citi analysts said in a note to clients that they expect a strong fourth quarter of fiscal 2026 and momentum heading into fiscal 2027 with Copilot and Azure cloud. Fundamental improvements should ultimately accelerate overall revenue/EPS growth through fiscal 2030, it said. Based on industry research, Citi said, “Copilot adoption momentum has increased significantly and customer feedback has improved as more advanced IQ products begin to be incorporated into the Copilot suite.” As a result, analysts are raising their estimates for CoPilot. “We expect M365 Copilot net additions to be +8 million vs. +5 million in the third quarter, which is above the typical PBP (payback period).” Microsoft will report its fourth quarter results after the market closes on July 29. “The City has the opposite view” of CoPilot, Jim said on CNBC, adding that reading the memo was like reading a page from “Alice in Wonderland.” He added that Citi’s optimism goes against everything he’s heard so far about the co-pilot being substandard. “Do you want to hear that a co-pilot is better? I mean, I don’t know about you, but I’d rather fly without a co-pilot.” But Jim was pleased to learn that Citi thought Azure was doing well. Microsoft stock rose more than 3% on Wednesday, extending its month-to-date gain to 6%. There were only three negative sessions in July. Despite this recent recovery, the stock is down 18% year-to-date, well below the S&P 500’s more than 10% rise over the same period. The company’s stock is down about 27% from its record closing price of just over $542 in late October 2025. MSFT 1Y Mountain Microsoft’s 1-year performance Citi maintained its buy rating, but recognized the deterioration in Microsoft’s stock and lowered its price target from $620 to $570, citing multiple compression of enterprise software. The group, which includes Microsoft, was broken this year over concerns about AI disruption. Fellow Club stock Salesforce has been hit even harder, dropping 36% year-to-date for the same reason. The concerns were crystallized by IBM’s pre-announcement of problems in its software business, which sent the stock down 25% on Tuesday and another 1% on Wednesday. Last week, Bloomberg reported that Starbucks is looking to cut the $400 million a year it pays Microsoft and IBM for software tools by replacing them with applications it develops itself with the help of AI. Concerns about “AI eating software” won’t go away overnight, but one way Microsoft can push back on these concerns is by showing meaningful and sustained traction with Copilot. Microsoft’s stock price is also under pressure from questions about its reliance on OpenAI for Azure’s growth. At the same time, the market is wondering if Microsoft is leaving Azure to grow as it faces capacity constraints. There’s no denying that Azure is a behemoth, but there’s no room for error when you consider that Microsoft and its cloud rivals Amazon and Alphabet have committed to spending a combined roughly $575 billion on AI infrastructure this year. This comes on top of the hundreds of billions of dollars already invested in building AI capabilities. Putting all this together, we remain cautious on Microsoft stock. While Jim is troubled by Citi’s Copilot view, he finds the analyst commentary on Azure reassuring. For the latest information on Microsoft and the rest of the Investing Club portfolio, watch the livestream of our July monthly meeting on Thursdays at noon ET. (Jim Cramer’s Charitable Trusts are long MSFT and CRM. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
