Two major Wall Street firms have lowered their price targets on Microsoft (NASDAQ:MSFT) ahead of its fiscal fourth-quarter earnings report on July 29, though both maintain bullish ratings. Citi reduced its target to $570 from $620, while Mizuho cut to $490 from $515, citing concerns over heavy capital expenditure. The stock has fallen 20% year to date, pressured by investor worries about spending on AI infrastructure.
Analysts Stay Bullish Despite Capex Concerns
Citi kept a Buy rating after constructive channel checks on Microsoft's Copilot AI assistant, viewing the company as well positioned to optimize token spending and AI efficiency. The firm expects strong Q4 results but warns that investors will need to digest higher capex in the first quarter. Mizuho's Gregg Moskowitz maintained an Outperform rating, describing channel checks as good, public cloud data points as strong, and AI adoption as robust. He noted that SaaS remains resilient, but multiples are pressured by concerns about AI-led disruption.
AI Business Surges as Capex Balloons
Microsoft's most recent quarter reinforced the bull case. Revenue hit $82.89 billion, up 18.3% year over year, with EPS of $4.27 beating the $4.09 consensus. Azure and other cloud services grew 40%, and CEO Satya Nadella revealed that the AI business surpassed an annual revenue run rate of $37 billion, up 123% year over year. However, quarterly capex surged 84% to $31 billion, raising questions about the pace of return on investment. Commercial remaining performance obligations stood at $627 billion, up 99%, signaling strong future demand.
Guidance on Capex Will Be Key
With Microsoft's fiscal Q4 report due, guidance on capital spending will matter as much as headline earnings. The common thread among analyst caution is capex intensity, the same concern that has weighed on the stock for months. Both Citi and Mizuho see long-term value but expect near-term volatility as the market digests Microsoft's massive AI investment.