MSFT FY26 Q4 — Azure Clears $100B, and the Capex Raise Gets Rewarded

The setup

Microsoft walked into its fiscal Q4 print — the quarter ended June 30 — as the least-loved of the megacaps. Shares had round-tripped from the mid-$500s to the high-$380s over twelve months, sitting near a one-year low against a 52-week range of roughly $349–$555 (unverified — range moves with the tape). The reason wasn't the business; it was the bill. The Street had spent the summer re-pricing the entire hyperscaler complex around a single fear: capital spending outrunning return on capital. Just a week earlier, Alphabet raised 2026 capex toward $205B and was sold off ~15%; Moody's flagged the six largest cloud/AI platforms pointed at roughly $785B of 2026 spend and close to $1T in 2027 with returns it called "unclear." As one desk put it, the market had "stopped rewarding hyperscalers for spending money."

So the real bar wasn't Azure — a ~40% print was already consensus. The bar was whether Microsoft could raise the spend and convince the tape the demand justified it. It did both, and the stock closed the gap between the two hyperscalers' reactions: up ~8.9% after hours to roughly $425. Read that reaction with one qualifier, though — the print hit the same afternoon the Federal Reserve held rates at 3.50–3.75% (a divided hold, no clear signal on a September cut), so the broad tape was already risk-on when the numbers dropped. The after-hours pop is largely MSFT-specific, but the macro backdrop was a tailwind, not a headwind; don't read the full move as a clean earnings-only verdict.

The numbers

Total revenue was $90.0B, up 18% (17% constant currency), a clean beat of the ~$87.6B consensus (unverified — consensus figure). Operating income was $40.6B (+18%). On the bottom line the two measures diverged in an unusual direction: GAAP diluted EPS was $4.81, up 32%, while non-GAAP EPS was $4.74, up 23% — GAAP running above non-GAAP, the opposite of the typical adjustment, so the cleaner comparison to the ~$4.24 Street number is the non-GAAP $4.74, still a beat of roughly $0.50. GAAP net income was $35.8B (+31%). Company gross margin was ~67%, and Microsoft Cloud gross margin was 65%, down year-over-year — Hood tied the decline to the sales-mix shift toward Azure, continued AI-infrastructure investment, and rising usage, partially offset by efficiency gains. One quality-of-earnings flag worth carrying: Microsoft is extending the useful life of servers and datacenter equipment from 15 to 25 years, which lowers annual depreciation and flatters reported margins and EPS going forward — a real accounting tailwind, not an operational one.

By segment: Intelligent Cloud $39.3B (+32%), Productivity & Business Processes $37.8B (+14%), and More Personal Computing $12.9B (−4%) — the one soft line, as Windows and devices keep shrinking as a share of the story. The lines that moved the stock sit inside the cloud: Azure and other cloud services grew 43%, three points clear of the ~40% bar, and Azure crossed $100B in annual revenue for the first time (up 41% for the full year). Microsoft Cloud revenue was $59.3B, up 27%, and commercial remaining performance obligation — the contracted backlog — jumped 84% to $678B. Microsoft 365 Copilot passed 30 million paid seats. For the full fiscal year, Microsoft printed $331B of revenue (+18%), operating income of $155B (+21%), and Microsoft Cloud revenue of $214B (+27%). Q4 capex was $41B (including higher component costs), of which roughly two-thirds went to short-lived assets — GPUs and CPUs — with 31 new datacenters added in the quarter and 88 across FY26.