Citi raises Microsoft stock price target to $540 from $480

On Thursday, Citi analysts updated their financial model for Microsoft (NASDAQ:MSFT), resulting in an increased price target to $540, up from the previous $480, while reiterating a Buy rating for the company’s shares. The revision follows Microsoft’s recent announcement of a 3% reduction in force (RIF) and the company’s strong fiscal third-quarter 2025 results. According to InvestingPro data, Microsoft, currently valued at $3.37 trillion, has seen 24 analysts revise their earnings estimates upward for the upcoming period, with price targets ranging from $429.86 to $650.

The Citi analyst noted that Microsoft’s management has expressed confidence in the demand environment and the investment cycle during follow-up discussions. The company has confirmed expectations of capital expenditure (CapEx) growth for the fourth fiscal quarter of 2025 and the full fiscal year 2026. This outlook has led the analysts to raise their growth projections for Azure, Microsoft’s cloud computing service, to 35% year-over-year constant currency (CC) in the fourth fiscal quarter and to maintain a growth rate in the 30s percentage range for fiscal year 2026. The company’s robust 14.13% revenue growth and strong financial health score of "GREAT" on InvestingPro support this optimistic outlook.

The recent RIF news, as reported by CNBC, is anticipated to bring about net savings of over $1 billion into fiscal year 2026. These savings are expected to help counterbalance the increasing costs from depreciation and CapEx. The analysts believe that the savings from the workforce reduction will contribute positively to Microsoft’s financial performance.

Citi’s confidence in Microsoft’s stock is further bolstered by the company’s leading position in generative artificial intelligence (GenAI). The analysts have reiterated their Buy rating, basing the raised price target of $540 on a 44x multiple of the 2026 estimated enterprise value to free cash flow (Ev/FCF) and a 36x price-to-earnings (PE) multiple. Trading at a current P/E ratio of 34.74x, Microsoft’s valuation reflects its premium position in the market, though InvestingPro analysis suggests the stock is slightly overvalued at current levels. Investors can access detailed valuation metrics and 16 additional ProTips with an InvestingPro subscription.

In other recent news, Microsoft is reportedly set to have its proposal to adjust the pricing of its Office product, with and without the Teams app, accepted by European Union antitrust regulators. This development follows a complaint from Slack, owned by Salesforce (NYSE:CRM), and could resolve a long-standing antitrust case. Additionally, Microsoft is part of the group of companies known as the Magnificent Seven, which saw a rally in premarket trading after the U.S. and China agreed to temporarily lower tariffs on each other’s goods. OpenAI has launched a new hub for safety evaluations of its AI models, aiming to provide transparency in model safety and performance. Furthermore, OpenAI is considering expanding its data center presence in the United Arab Emirates, with an announcement potentially coinciding with a visit by U.S. President Donald Trump to the Middle East. In another update, OpenAI has enhanced its ChatGPT tool to allow users to export research reports as PDFs, improving usability for Plus, Team, and Pro users. These developments highlight ongoing efforts by Microsoft and OpenAI to address regulatory challenges and enhance their technological offerings.

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