Microsoft Azure Tops $100 Billion as AI Buildout Delivers

Microsoft reported fiscal fourth-quarter revenue of $90.0 billion, up 18 percent, and net income of $35.8 billion, up 31 percent, as Azure crossed $100 billion in annual revenue for the first time and Microsoft 365 Copilot passed 30 million paid seats.

Operating income reached $40.6 billion, also up 18 percent. Diluted EPS hit $4.81 GAAP (up 32 percent) and $4.74 non-GAAP (up 23 percent) after stripping OpenAI investment effects. The quarter beat the company’s own April guidance once one-time items were adjusted.

The Quarter That Cleared Every Bar

Full-year fiscal 2026 revenue landed at $331.8 billion, up 18 percent. Operating income was $155.2 billion, up 21 percent. GAAP net income reached $133.7 billion.

Microsoft Cloud revenue for the quarter was $59.3 billion, up 27 percent. Commercial remaining performance obligation climbed 84 percent to $678 billion. Cash from operations hit $55.4 billion; free cash flow was $19.6 billion after heavy capital spending. The company returned $10.2 billion to shareholders in the quarter and more than $43 billion for the year.

Several discrete items added a net $0.27 to diluted EPS versus the April 29 guidance. The largest was a $3.2 billion gain on the company’s stake in Anthropic. Lower-than-expected Voluntary Retirement Program costs helped too. Severance and Xbox impairment charges offset part of the benefit. After those adjustments, revenue, operating income and EPS all exceeded internal targets.

Non-GAAP figures exclude the impact of OpenAI investments. In the quarter that impact was a $480 million gain ($0.07 per share). For the full year OpenAI investments contributed a $4.96 billion net gain ($0.67 per share).

Azure Crosses the Hundred-Billion Threshold

Azure and other cloud services revenue grew Azure and other cloud services grew 43% in the quarter (43 percent constant currency). Full-year Azure growth reached 41 percent, pushing annual revenue past $100 billion for the first time.

Intelligent Cloud segment revenue was $39.3 billion, up 32 percent. Management said customer demand still exceeds available capacity. Efficiency gains across the CPU and GPU fleet plus faster delivery of new capacity let the company monetize incremental supply inside the quarter. GitHub Copilot consumption also ran hotter after a June shift to usage-based pricing.

• 43% Azure growth in Q4, accelerating from prior quarters near 39-40 percent
• $100B+ annual Azure revenue milestone
• 45% approximate constant-currency Azure growth guided for Q1 FY27
• 88 new datacenters added in the fiscal year, 31 of them in Q4 alone

Company gross margin was 67 percent, down year over year on the mix shift toward Azure and higher AI infrastructure and usage costs. Microsoft Cloud gross margin came in better than expected at 65 percent, still down from prior periods for the same reasons. Efficiency work continues: Copilot workloads now run at 4X the throughput seen at the start of the year, and internal models on Maia 200 silicon deliver material performance-per-dollar and per-watt gains.

The broader industrial AI infrastructure build is visible far beyond Redmond. Capacity constraints and component pricing remain industry-wide issues.

Copilot Seats Hit Thirty Million

Microsoft 365 Copilot surpassed 30 million paid seats. Net seat adds more than doubled quarter over quarter. Conversations per user nearly doubled year over year. Average weekly engagement now matches Outlook and Teams levels. Time from deployment to high usage (over 80 percent monthly active) has compressed from months to days.

Customers with more than 50,000 seats grew over 7X year over year. Enterprise customers rolling Copilot out to a majority of information workers rose nearly 75 percent sequentially. Premium SKUs including Copilot, E5 and the new E7 suite lifted ARPU. Hundreds of enterprises have already bought millions of E7 seats; EY’s 400,000-employee deployment is the largest so far.

Named large commitments include:

• NHS England rolling out to 505,000 clinicians and staff after trials showed 43 minutes saved per day
• KPMG expanding across more than 276,000 professionals
• HSBC committing to 200,000 seats
• Multiple 60,000-plus seat deals from AstraZeneca, Boeing, Infosys, P&G, Wells Fargo and others

Productivity and Business Processes revenue reached $37.8 billion, up 14 percent. Microsoft 365 Commercial cloud grew 14 percent reported (16 percent adjusted for a prior-year timing benefit). Consumer cloud rose 24 percent. LinkedIn grew 12 percent. Dynamics 365 rose 13 percent.

We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results. This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation.

Satya Nadella, chairman and chief executive officer, said those lines in the Microsoft Cloud and AI strength fuels results release.

CapEx Hits $41 Billion and the Lease Shift

Capital expenditures were $41 billion in the quarter, including higher component pricing already flagged in prior guidance. Roughly two-thirds went to short-lived assets (mainly CPUs and GPUs). The rest funded long-lived datacenter shells. Finance leases totaled $5.6 billion. Cash paid for property and equipment was $35.8 billion.

Effective the start of fiscal 2027, Microsoft is extending estimated useful lives of datacenters and office buildings from 15 to 25 years. The change has minimal impact on FY27 operating income but shifts more future datacenter leases from finance leases (counted in CapEx) to operating leases (not counted in CapEx). Outside that accounting effect, calendar 2026 CapEx expectations stay roughly intact; the lease reclassification brings the reported figure to approximately $175 billion.

Management expects FY27 CapEx to grow year over year on continued demand signals. Full-year operating margins should decline less than one point. The company expects to stay free-cash-flow positive. Headcount fell 2 percent year over year even as R&D compute and talent spending rose.

CFO Amy Hood highlighted Microsoft Cloud revenue of $59.3 billion as the strong close to the year. The second-order signal is clear: the same spend that worried investors earlier in the year is now paired with accelerating growth rates and a backlog that stretches years forward.

Xbox Reset and the Softer Personal Computing Side

More Personal Computing revenue was $12.9 billion, down 4 percent. Windows OEM and Devices fell 7 percent on softer PC demand and a tough comparison to the prior-year Windows 10 end-of-support period. Search advertising ex-TAC rose 10 percent.

Xbox content and services revenue fell 10 percent against a strong first-party content comparison a year earlier. The segment took impairment charges. Nadella said the company is making the portfolio, platform and operating decisions needed to reset Xbox for long-term growth and expects a return to growth in fiscal 2027. The best IP and studio talent remain, he added, but the near-term numbers show the cost of that reset.

Operating income in the segment declined 14 percent and margins compressed to 21 percent.

The Backlog That Changes the CapEx Debate

Commercial remaining performance obligation of $678 billion is the number that reframes the spending conversation. Sequential growth in commercial RPO came entirely from customers outside frontier model labs. Excluding OpenAI, RPO still rose 25 percent. Weighted average duration is 2.3 years; roughly 30 percent converts in the next twelve months (up 37 percent year over year), while the longer-dated portion jumped 112 percent.

Nearly 90 percent of full-year Microsoft Cloud revenue came from customers outside frontier model companies. Commercial bookings grew 18 percent when OpenAI is excluded. The concentration risk around large model trainers remains real, yet the breadth of the non-frontier backlog is now large enough to stand on its own.

Q1 FY27 guidance points to more of the same. Intelligent Cloud revenue is expected at $40.95-41.25 billion (33-34 percent growth). Azure is guided to approximately 45 percent constant-currency growth, with first-half acceleration still expected. Productivity and Business Processes is seen at $36.7-37.0 billion (11-12 percent growth). Microsoft 365 Commercial cloud should grow about 16 percent constant currency on an adjusted basis.

The company also continues multi-model and sovereignty work. Foundry now has 100,000 customers and more than doubled revenue. Agent 365 has nearly 40 million agents registered. Partnerships with Mistral for sovereign cloud and the earlier circular deal that included a $5 billion investment in Anthropic plus Anthropic’s $30 billion Azure commitment sit alongside the core OpenAI relationship.

After-hours trading reflected the mix of relief and residual caution that has followed every recent hyperscaler print. Some posts tracked gains of roughly 2.5 to 8 percent as the Azure acceleration and free-cash-flow resilience registered. The deeper point is structural: CapEx is no longer an abstract bet. It is converting into seats, consumption, multi-year contracts and a growth rate that is still climbing. That conversion is the second-order story the headline numbers only begin to tell.

Microsoft’s AI infrastructure build sits inside a broader industrial AI infrastructure build that stretches across chips, power and construction. The company’s ability to keep monetizing new capacity faster than depreciation and competition catch up will set the pace for the next several quarters.