Microsoft (NASDAQ:MSFT) closed fiscal 2026 with record revenue and continued growth in cloud and artificial intelligence services, while outlining plans for further infrastructure investment and forecasting double-digit revenue and operating-income growth in fiscal 2027.
For the fiscal fourth quarter, Microsoft reported revenue of $90 billion, up 18% year over year, or 17% in constant currency. Operating income rose 18%, while earnings per share reached $4.74, up 23% after adjusting for the impact of the company’s OpenAI investment. Chief Financial Officer Amy Hood said the quarter included a $3.2 billion gain from Microsoft’s investment in Anthropic, as well as lower-than-expected expenses related to its voluntary retirement program. Those benefits were partly offset by Xbox severance and impairment charges.
Azure Growth Accelerates Amid Capacity Constraints
Intelligent Cloud revenue rose 32% to $39.3 billion in the quarter. Azure and other cloud services revenue increased 43%, with Hood saying demand continued to exceed available capacity. She attributed the stronger-than-expected Azure results partly to efficiency improvements across Microsoft’s CPU and GPU fleet and process changes that enabled capacity to be delivered earlier.
Chief Executive Officer Satya Nadella said Microsoft added 31 data centers across five continents during the quarter, bringing the year’s total additions to 88. The company added another gigawatt of capacity and remains on track to roughly double its overall capacity in two years, he said. Microsoft also reduced dock-to-live times for new GPUs in its largest regions by nearly 50% over the past fiscal year.
Capital expenditures totaled $41 billion in the quarter, including higher component prices. About two-thirds of the spending was directed toward short-lived assets, primarily CPUs and GPUs. Hood said cash paid for property and equipment was $35.8 billion, while free cash flow was $19.6 billion.
Looking ahead, Microsoft expects fiscal first-quarter Azure revenue growth of about 45% in constant currency. Hood said the company remains capacity constrained despite its strong fourth-quarter execution and expects first-half Azure growth to accelerate.
AI Products Drive Commercial Momentum
Microsoft continued to report expanding adoption of its AI offerings. Nadella said Microsoft 365 Copilot surpassed 30 million paid seats, with net paid-seat additions more than doubling sequentially. The company said the number of customers with more than 50,000 Copilot seats increased more than sevenfold from a year earlier.
Nadella highlighted several large deployments, including NHS England’s rollout to 505,000 clinicians and staff, HSBC’s commitment to 200,000 seats, and EY’s deployment of Microsoft’s E7 suite to 400,000 employees. Microsoft has begun adding usage-based billing alongside its per-seat licensing model for Copilot offerings.
GitHub Copilot reached 50 million users, while GitHub’s overall user base rose to 225 million. Nadella said Copilot revenue accelerated more than 60% sequentially after the company introduced usage-based billing. One in three pull requests on GitHub now involves an agent, he said.
Microsoft’s Foundry platform reached 100,000 customers and more than doubled revenue year over year. The company said the number of Foundry customers operating at an annualized rate of 1 trillion tokens increased fourfold. Meanwhile, Agent 365, introduced two months earlier, had nearly 40 million agents registered across tens of thousands of companies.
The company is also promoting a multivendor model strategy. Nadella said Microsoft offers more than 11,000 models through its cloud catalog, including offerings from OpenAI, Anthropic, Mistral and xAI, alongside Microsoft’s own MAI models. He said the number of customers using models from multiple providers increased fivefold since the start of the year.
Margins, Consumer Businesses and Capital Spending
Companywide gross margin was 67%, down from a year earlier due to a greater mix of Azure revenue, AI infrastructure investments and increased product usage. Operating margin nevertheless rose slightly to 45%, as operating expenses increased 10%, slower than revenue growth.
In Productivity and Business Processes, revenue increased 14% to $37.8 billion. Microsoft 365 Commercial Cloud revenue rose 14% on a reported basis, while Dynamics 365 revenue grew 13%. LinkedIn revenue rose 12%, primarily driven by marketing solutions.
More Personal Computing revenue declined 4% to $12.9 billion. Windows OEM and devices revenue fell 7%, which Hood attributed to lower PC market demand and a difficult comparison with the prior year, when Windows 10 end-of-support contributed to results. Xbox revenue declined 10%, and Xbox content and services revenue also fell 10%.
Nadella said Microsoft is making decisions across Xbox content, platform and operations to reset the business for long-term growth. He said the company expects Xbox to return to growth in fiscal 2027.
Fiscal 2027 Outlook
For the fiscal first quarter, Microsoft forecast total revenue of $89.85 billion to $90.95 billion, representing growth of 16% to 17%. The company expects Intelligent Cloud revenue of $40.95 billion to $41.25 billion and Productivity and Business Processes revenue of $36.7 billion to $37 billion.
Microsoft expects first-quarter capital expenditures of more than $50 billion, including the effect of a lease reclassification tied to an extension in the estimated useful life of data centers and office buildings. The company now expects approximately $175 billion in fiscal 2027 capital expenditures, while maintaining that its underlying calendar 2026 investment expectations are unchanged.
For fiscal 2027, Hood said Microsoft expects another year of double-digit revenue and operating-income growth, with operating expenses rising in the mid- to high-single-digit range. Operating margins are expected to decline by less than one percentage point for the full year, and the company expects to remain free-cash-flow positive.
About Microsoft (NASDAQ:MSFT)
Microsoft Corporation is a global technology company headquartered in Redmond, Washington. Founded in 1975 by Bill Gates and Paul Allen, Microsoft develops, licenses and supports a broad range of software products, services and devices for consumers, enterprises and governments worldwide. Its operations span personal computing, productivity software, cloud infrastructure, enterprise applications, developer tools and gaming.
Microsoft’s product portfolio includes the Windows operating system and the Microsoft 365 suite of productivity and collaboration tools (Office apps, Outlook, Teams).
