Citi adds positive catalyst watch on Microsoft, says Azure estimates too low

Investing.com -- Citi analysts initiated a "positive catalyst watch on MSFT," in a note to clients Wednesday, telling investors that "Street Azure estimates are too low for FY26."

The bank’s conviction is based on an "exit rate math and capex ROI analysis, which supports Azure growth in the mid-to-high 30s% and recent read-throughs and positive checks."

Citi believes the catalyst will be Microsoft (NASDAQ: MSFT)’s fiscal fourth quarter 2025 earnings release, when "FY26 guidance is announced and beyond as both Microsoft and OpenAI AI revenue continues to ramp."

Microsoft remains Citi’s "top pick in software given its relative defensiveness in a choppy macro environment, AI product cycle, and our reinforced conviction that Street estimates on Azure may be too low for FY26."

The analysts’ analysis, which includes breaking down Azure growth into monthly exit rates and examining AI growth based on inflecting token usage, supports their bullish outlook.

Citi’s "Exit rate math + token usage suggests Azure hit an inflection." The bank’s analysts note that Azure revenue growth reached "35% y/y cc in F’3Q25, with one of the biggest beats and QoQ reaccelerations in history."

Their analysis points to an "inflection in March, with an exit growth rate of 39% y/y," which is "comfortably above the June-Q guide of 34-35% y/y and consensus expectations for FY26 of 32% y/y."

Furthermore, Citi’s "CapEx ROI analysis supports Azure growth of 37% y/y." Their calculation, based on Microsoft’s CapEx, is said to imply a cumulative revenue of "$299 billion over 6 years" from future AI revenue.

Citi is raising its base case estimate, now seeing "36.1% y/y cc FY26 Azure growth (vs. consensus at 32.1% y/y)," and has lifted its price target to $605.

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