Microsoft Reports Strong Q4/26 Revenue and Profit Growth, Plans Further Investment in Data Centers Despite Stock Decline This Year

Microsoft shares surged more than 8% immediately after market close on Wednesday following the company's Q4 2026 earnings report, which showed solid revenue and profit. The company also confirmed ongoing investment in AI infrastructure throughout 2026.

Q4 2026 Earnings Results

Microsoft's financial results for the quarter ended 30 June 2026 are as follows:

• Total revenue was $90.01 billion. This represents an 18% increase compared to the same period last year and exceeded LSEG analysts' estimate of $87.62 billion.
• Net profit stood at $35.8 billion. Or $4.81 per share, up from $27.23 billion or $3.65 per share in the previous year.

Microsoft stated that profits were supported by a $3.2 billion investment in Anthropic and lower-than-expected expenses due to the company's first voluntary early retirement program.

Key highlights of Microsoft’s business segments include:

• Microsoft Cloud revenue reached $59.3 billion. An increase of 27%, while the value of unrecognized backlog grew 84% to $678 billion.
• The Productivity and Business Processes segment, which includes Microsoft 365 for businesses and consumers as well as LinkedIn, reported: Revenue of $37.8 billion. A 14% increase year-over-year, with a notable trend that consumer cloud usage surpassed enterprise customers last year.
• The Intelligent Cloud segment, which includes the Azure business, recorded revenue of $39.3 billion, up 32%, with Azure revenue growing 43%, marking a key highlight.
• The More Personal Computing segment generated $12.9 billion in revenue, a 4% decline from the prior year. This segment covers Devices including Windows OEM, Xbox, and Search Advertising businesses, all of which saw revenue decreases.

Additionally, Microsoft returned $10.2 billion to shareholders in Q4 of fiscal 2026 through dividends and share repurchases.

Fiscal Year 2026 Earnings Results

Microsoft reported the following for the fiscal year ended 30 June 2026 compared to the prior year:

• Total revenue was $331.8 billion, an 18% increase.
• Net profit was $133.7 billion, up 31%.

However, despite the strong full-year results, Microsoft shares had already declined about 19% year-to-date before the latest quarterly announcement, while the S&P 500 index rose approximately 7%.

Investors have sold off large software stocks this year amid concerns that traditional software businesses may be rapidly disrupted by AI technology.

Furthermore, Deutsche Bank analysts warned that Microsoft faces risks from reliance on major customers, particularly its relationship with OpenAI, which could be affected by the growing popularity of open-source AI models.

Previously, Microsoft revealed that about 45% of its commercial unrecognized backlog, valued at $625 billion, comes almost entirely from OpenAI.

Regarding free cash flow, it stood at $19.64 billion, a 23% decrease. Despite this decline, CFO Amy Hood said Microsoft expects to return to positive free cash flow in fiscal 2027.

As for Q1 fiscal 2027 revenue guidance, it is projected between $89.85 billion and $90.95 billion, an approximately 16% increase from last year and above LSEG analysts’ estimate of $89.66 billion.

Continued Heavy Investment

Regarding capital expenditures (CapEx) in the latest quarter, these reached $41 billion, a 69% increase. Amy Hood explained that Microsoft will maintain its investment plans for 2026 as planned.

However, Microsoft will extend the useful life of office buildings and Data Centers from 15 years to 25 years and convert many future Data Center leases from Finance Leases to Operating Leases. In other words, tenants leasing Data Centers from Microsoft will no longer have ownership rights but only usage rights for the lease term. This change will reduce the reported CapEx to about $175 billion.

For fiscal 2027, investments are expected to rise further due to strong demand signals across all business segments.

Satya Nadella, Microsoft’s CEO, noted that since growth from general business customers now exceeds that from AI model developers, the company must allocate AI processing power and chips appropriately among Azure cloud services, AI research, and products like Microsoft 365 Copilot. Using more AI chips for training models reduces resources available for cloud customers.

“We are making AI more cost-effective so that all customers can transform AI usage into measurable business outcomes,” Satya Nadella said.

Source:Microsoft,CNBC

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