Microsoft Fourth Quarter Results Beat Estimates As Azure Growth Accelerates, AI Business Tops $100bn

Microsoft delivered stronger-than-expected fiscal fourth-quarter results on Wednesday, driven by accelerating growth in its Azure cloud business and continued demand for artificial intelligence services.

The results sent the software giant's shares higher in after-hours trading and bolstered investor confidence that its massive AI investments are beginning to generate meaningful returns. Shares of Microsoft rose about 3% in extended trading after the company reported earnings and revenue that exceeded Wall Street expectations.

The results come at a critical time for Microsoft, whose stock has fallen about 19% this year, significantly underperforming the S&P 500's roughly 7% gain, as investors questioned whether the company's heavy AI spending and close relationship with OpenAI would translate into sustained earnings growth.

For the fiscal fourth quarter ended June 30, Microsoft reported adjusted earnings per share of $4.74, above analysts' expectations of $4.24, according to LSEG.

Revenue rose to $90.01 billion, exceeding analysts' forecast of $87.62 billion and representing 18% year-over-year growth.

Net income climbed to $35.77 billion, or $4.81 per share, from $27.23 billion, or $3.65 per share, a year earlier.

The company said earnings benefited from a $3.2 billion gain related to its investment in AI startup Anthropic as well as lower-than-expected costs associated with Microsoft's first voluntary retirement program.

Those gains were partially offset by an impairment charge within the Xbox gaming business.

The standout performer was Microsoft's Intelligent Cloud division. Revenue from the segment reached $39.31 billion, up 31.6% from a year earlier and above analysts' expectations of $38.16 billion.

Azure, Microsoft's flagship cloud platform, accelerated its growth to 43%, surpassing analyst forecasts of roughly 40% and improving from 40% growth recorded in the previous quarter. The company also disclosed that Azure generated more than $100 billion in revenue during fiscal 2026, growing 41% over the previous year.

The milestone highlights Azure's emergence as one of Microsoft's largest businesses, although it remains smaller than Amazon Web Services while maintaining a larger market position than Google Cloud.

Chief Financial Officer Amy Hood forecast Azure growth of 45% at constant currency in the current quarter, comfortably above analysts' expectations of 41.4%, suggesting AI-related cloud demand remains exceptionally strong.

Microsoft reported continued growth across its AI-powered productivity products.

The Productivity and Business Processes division, which includes Microsoft 365, LinkedIn and Dynamics, generated $37.85 billion in revenue, up 14.3% year over year and ahead of market expectations.

The company said Microsoft 365 Copilot now has more than 30 million paid seats, up from more than 20 million reported in July, reflecting accelerating enterprise adoption of AI-powered workplace tools.

Chief Executive Officer Satya Nadella said hundreds of enterprise customers have purchased millions of licenses for Microsoft's premium E7 productivity bundles, which integrate AI capabilities more deeply into enterprise workflows.

He also revealed that GitHub Copilot, Microsoft's AI coding assistant, has reached 50 million users, highlighting the growing adoption of AI among software developers.

The rapid expansion of Microsoft's AI products supports the company's strategy of embedding generative AI across its software ecosystem rather than relying solely on cloud infrastructure revenue.

Massive AI Investment Continues

Microsoft continues to spend aggressively to expand AI infrastructure. Capital expenditures and finance leases surged 69% to $41 billion during the quarter as the company invested heavily in data centers, servers and AI chips.

Despite those investments, Microsoft reaffirmed its capital spending plans for fiscal 2026. The company also announced accounting changes that will reduce reported capital expenditures over time.

Office buildings and data centers will now be depreciated over 25 years instead of 15 years, while more future data center leases will be treated as operating leases rather than finance leases.

Those changes are expected to account for approximately $175 billion in future capital expenditures. The heavy spending continued to weigh on cash generation. Free cash flow fell 23% to $19.64 billion, reflecting the enormous investments required to build AI infrastructure.

Hood said Microsoft expects to return to positive free cash flow growth during fiscal 2027 as those investments begin generating stronger returns.

Enterprise Demand Remains Robust

Microsoft's commercial backlog also continued to expand. Commercial remaining performance obligations, a measure of contracted future revenue, increased 8% sequentially to $678 billion.

The company said the increase was driven primarily by commitments from enterprise customers outside the AI model development industry, suggesting demand for Microsoft's cloud and productivity services remains broad-based rather than concentrated among AI developers.

That may help ease investor concerns over Microsoft's dependence on OpenAI. Earlier this month, analysts at Deutsche Bank warned that Microsoft's partnership with OpenAI presents a degree of concentration risk as open-source AI models become increasingly competitive.

Microsoft disclosed in January that roughly 45% of its $625 billion in commercial remaining performance obligations were tied to OpenAI.

While Microsoft's enterprise operations continued to expand rapidly, its consumer-focused businesses remained weaker.

Revenue in the More Personal Computing division, which includes Windows, Surface, Bing and Xbox, declined 4.4% to $12.85 billion, though the figure still exceeded analyst expectations. Sales of Windows licenses and Surface devices fell 7%, reflecting continued weakness in the global personal computer market.

Technology research firm Gartner estimated worldwide PC shipments declined 4.2% during the period. Xbox revenue also fell 10% following restructuring efforts that included job cuts and organizational changes announced earlier this month.

However, the latest results suggest Microsoft's multibillion-dollar investment in artificial intelligence is increasingly translating into financial performance.

Azure's accelerating growth, rising adoption of Copilot products and expanding enterprise contracts indicate that businesses continue to increase spending on AI-powered cloud services despite broader concerns about the sustainability of AI investment.

The results also contrast with recent investor anxiety surrounding the AI sector, where several semiconductor companies have experienced sharp share-price declines amid questions about valuations and capital expenditure.