Correct. Real Madrid this season has appeared very impressive and several of the players they have brought in have also had a big influence on Real Madrid's current game. So it would be wrong to think that Real Madrid is still like last season, because this season Real Madrid is getting stronger. Indeed, Man City this season has high self-confidence because last season they managed to humiliate Real Madrid. It's not wrong because self-confidence is the key to beating them, but Real Madrid is still Real Madrid, especially in the Champions League!
In Champions League, Real Madrid are the all time champions and in most of seasons, they are considered as one of most favorite candidates for title. This season, they are playing well, showing their strength so it makes sense to consider their position like that, and it is not only based on their club reputation and past success in Champions League.
Moreover, Man City has not appeared impressive compared to last season. Pep Guardiola has to do something. Man City must forget last season's match. Since this is Real Madrid in the UCL, you should not underestimate them.
Manchester City still play well but in this season, they have less contributions from three players, Haaland, De Bruyne and Grealish. They were all important for their three titles include Champions League last season. What's going on with Grealish is so strange as he nearly disappear from their squad this season. Many injuries and when he had chances to play, he did not perform well.
However, Manchester City have a deep squad and this season, they have a best ever Phil Foden and this player will be an important piece in any tactical plan of Pep Guardiola in two matches with Real Madrid.