Microsoft delivered a powerful rebuttal to sceptics on Wednesday, reporting quarterly results that showed its massive artificial intelligence investments are beginning to yield tangible returns.
The Redmond-based software giant surpassed Wall Street estimates for cloud revenue growth and issued an optimistic forecast for the current quarter, sending shares up more than 8 per cent in extended trading.
Azure flexes its muscles
The headline number came from Microsoft’s Azure cloud-computing division, which posted a 43 per cent revenue increase in the fiscal fourth quarter ended June 30.
Looking ahead, Microsoft projected Azure growth of 45 per cent on a constant-currency basis for the fiscal first quarter, comfortably above analyst expectations of 40.92 per cent. The overall revenue forecast landed at a midpoint of $90.4 billion, edging past the $89.66 billion Wall Street had anticipated.
The cloud race
The Azure results arrived just days after Google Cloud reported a stunning 82 per cent surge in revenue, a figure that had prompted speculation about whether Alphabet was eating into Microsoft’s market share. Those concerns appeared to be put to rest by Microsoft’s numbers.
The competitive landscape remains a three-horse contest, with Microsoft holding the No. 2 position in cloud infrastructure behind Amazon Web Services and fending off a resurgent Google.
Nadella’s architectural vision
On the earnings call, CEO Satya Nadella outlined an evolving strategy that marks a notable shift from Microsoft’s earlier heavy reliance on OpenAI. The company, which once leaned primarily on ChatGPT’s creator for the foundational models powering products like its Copilot assistant, is now designing its own models alongside custom silicon — and Nadella says the approach is delivering efficiency gains of up to 40 per cent.
The vision is one of technological pluralism: Microsoft and its customers should be free to choose AI technologies based on cost and performance requirements rather than being locked into a single provider. “That’s really the enterprise design architecture that we are going to evangelize. We ourselves are using it,” Nadella said.
Capex puzzle
Perhaps the most scrutinised aspect of the report was Microsoft’s capital expenditure trajectory. The company disclosed a change in how it accounts for data centre leases, spreading them over 25 years instead of the previous 15-year window — an adjustment that mechanically lowers reported annual capital expenditures without altering the underlying spending reality.
Microsoft said its spending plans remain unchanged and pointed to reported capex of $50 billion for the fiscal first quarter of 2027 and $175 billion for the 2026 calendar year. Both figures came in below analyst estimates — Wall Street had been modeling $56.02 billion for the first quarter, and Microsoft’s own prior guidance had suggested $190 billion for calendar 2026.
Capital expenditures for the April-June quarter reached $41 billion, a jump of more than 70 per cent from the prior year but slightly below the $42.37 billion consensus. The prior three-month period had seen $31.9 billion in spending.
Despite the enormous outlays, free cash flow for the quarter stood at $19.6 billion, well above the $13.44 billion analysts had projected — though still down 23 per cent year-over-year. The cash generation provided reassurance that Microsoft’s balance sheet can absorb the AI infrastructure buildout without undue strain.
The $329b signal
Buried in Microsoft’s securities filing was a staggering figure: $329.1 billion in data center leases that have not yet commenced, with start dates spanning fiscal 2027 through fiscal 2033. Some of those leases are contingent on contractual conditions being met, but the sheer scale underscores the company’s conviction that AI-driven demand will continue to accelerate for years.
That conviction was reinforced by Microsoft’s cloud contracted backlog, which reached $678 billion at quarter-end, up from $627 billion in the prior period. Crucially, the company noted that all of the roughly $50 billion sequential increase came from commitments made by companies outside the circle of leading US AI model makers — suggesting broad-based enterprise adoption rather than concentration among a handful of hyperscalers.
On the product front, Microsoft 365 Copilot paid seats surpassed 30 million, up from 20 million reported last quarter and comfortably ahead of the 26.9 million analysts had forecast. The growth signals that Microsoft’s AI assistant is moving beyond experimental adoption into meaningful enterprise deployment.
Fourth-quarter results
· Revenue was $90.0 billion and increased 18% (up 17% in constant currency)
· Operating income was $40.6 billion and increased 18%
· Net income was $35.8 billion and increased 31% on a GAAP basis, and was $35.3 billion and increased 22% on a non-GAAP basis
· Diluted earnings per share was $4.81 and increased 32% on a GAAP basis, and was $4.74 and increased 23% on a non-GAAP basis
· Non-GAAP results exclude the impact from investments in OpenAI, explained in the Non-GAAP Definition section below
Fiscal year 2026 results
· Revenue was $331.8 billion and increased 18% (up 16% in constant currency)
· Operating income was $155.2 billion and increased 21% (up 19% in constant currency)
· Net income was $133.7 billion and increased 31% on a GAAP basis, and increased 22% (up 20% in constant currency) on a non-GAAP basis
·        Diluted earnings per share was $17.95 and increased 32% on a GAAP basis, and increased 22% (up 21% in constant currency) on a non-GAAP basis.