Citi analysts have increased their price target for Microsoft (NASDAQ:MSFT) to $520 from $495, while maintaining their Buy rating on the stock.

The bank noted that recent positive news surrounding OpenAI has favorable implications for Microsoft's Azure, though they caution that expenses might be underestimated.

Recent press coverage has highlighted OpenAI's impressive growth, with the company more than doubling its annualized revenue to $3.4 billion and expanding its cloud capacity contracts with Oracle.

While these developments indicate strong growth prospects for Azure, Citi analysts believe that consensus models may be underestimating the losses Microsoft will incur from its investment in OpenAI, particularly in the non-operating expense line. Although these losses are not significant compared to Microsoft's overall business scale, the analysts suggest that consensus EPS estimates might be overstated by $0.04-$0.05 in the upcoming quarters.

As a result, Citi has slightly lowered its near-term EPS estimates by about 1% for Q4/24 and Q1/25, with an EPS projection of $3.08, approximately 2% below the Street estimate of $3.15. However, they have raised their estimates for fiscal year 2027 and beyond.