No one is underestimating City, and they need to fight for their survival in UCL for us to confirm that they are worth to qualify for the round of 16. Same applies to EPL, despite being the defending champions does not mean that if they don't improve their performance, they will be able to finish on top four. City have only won two weak teams and no one knows if they have improved or not.
2021, Manchester City reached the UEFA Champions League final, 2022, they were knocked out in the semi final, they won it competition in 2023 and were narrowly eliminated from the quarter finals last year. Considering the form in the competition in the last four years, I don't think any club in the competition would want to underestimate Pep Guardiola's City.
That said, they've not been at the top of their game this season which is why I personally think that it's acting very possible for them to be eliminated from the group stage of the UCL this season. With 8 points gathered in 6 UCL games this season, Manchester City will play their next match away at Paris Saint Germaine and a defeat in that match might end their hopes to reach the next round of the competition.
Certainly it will be crazy for any team to underestimate Guardiola and Manchester City in the UCL, we know how much they have struggled in their last ten games in all competitions but given their stats in the champions league in the last three seasons they are not to be written off so fast, I think they will at least make it to playoffs and qualify for the next level if things don’t go in their favor against PSG though I expect a win for Manchester City against PSG.