Microsoft Q4 FY2026 Revenue Hits $90 Billion, Adjusted EPS Reaches $4.74 as Azure Tops $100 Billion Annually

Microsoft reported stronger fourth-quarter results as accelerating demand for Azure and artificial intelligence services lifted cloud revenue, although record infrastructure spending caused free cash flow to fall sharply.

Revenue for the fiscal fourth quarter ended June 30 rose 18% year over year to $90.0 billion, or 17% on a constant-currency basis. Operating income increased 18% to $40.6 billion, while GAAP net income climbed 31% to $35.8 billion.

GAAP diluted earnings per share increased 32% to $4.81. Excluding the effect of Microsoft’s OpenAI investments, adjusted net income reached $35.3 billion, up 22%, while adjusted EPS rose 23% to $4.74. Microsoft said several one-off items added approximately $0.27 to quarterly EPS compared with the guidance issued in April. These included a $3.2 billion gain on its Anthropic investment and lower-than-expected costs under its voluntary retirement programme, partly offset by severance expenses and Xbox impairment charges.

Azure Annual Revenue Surpasses $100 Billion

Azure generated more than $100 billion in revenue for the full fiscal year for the first time, representing annual growth of 41%. Total Microsoft Cloud revenue exceeded $214 billion during FY2026, rising 27%.

Microsoft CEO Satya Nadella said the milestone reflected growing customer confidence in the company’s ability to convert AI usage into measurable business results. Microsoft 365 Copilot also surpassed 30 million paid seats, with quarterly net seat additions more than doubling from the previous three-month period.

For the fourth quarter alone, Microsoft Cloud revenue increased 27% to $59.3 billion, supported by Azure and the company’s own AI applications and services. Commercial remaining performance obligations, a measure of contracted revenue that has yet to be recognised, surged 84% to $678 billion. Excluding OpenAI, commercial RPO increased 25%.

Microsoft said the backlog had a weighted average duration of 2.3 years. Around 30% is expected to be converted into revenue over the next 12 months, while obligations scheduled for recognition beyond that period increased 112% year over year. The company added that all sequential growth in commercial RPO came from customers outside frontier-model developers.

Intelligent Cloud Revenue Jumps 32%

Revenue in Microsoft’s Intelligent Cloud segment rose 32% to $39.3 billion, or 31% in constant currency. Azure and other cloud services revenue increased 43%, accelerating despite a strong comparison with the previous year.

Microsoft said cloud demand continued to exceed its available infrastructure capacity. Azure outperformed the company’s expectations as Microsoft improved the efficiency of its CPU and GPU fleet and shortened the time needed to bring new computing capacity online. The additional capacity was quickly converted into revenue because of the continuing supply-demand imbalance.

GitHub Copilot also contributed to the segment’s performance after Microsoft introduced a usage-based pricing model in June. Copilot revenue accelerated by more than 60% quarter over quarter, while GitHub Copilot reached 50 million users. GitHub’s overall user base expanded to 225 million.

Intelligent Cloud operating income increased 31% to nearly $16.0 billion. However, the segment’s gross margin percentage declined as the sales mix shifted toward Azure and Microsoft continued to build AI infrastructure ahead of demand. Higher GitHub Copilot usage also weighed on margins, although profitability improved after the pricing change.

Microsoft 365 and LinkedIn Support Productivity Growth

Productivity and Business Processes revenue rose 14% to $37.8 billion.

Microsoft 365 Commercial cloud revenue increased 14% on a reported basis. After adjusting for a prior-year benefit from the timing of revenue recognition, growth was 16%. Paid commercial seats increased 6%, led primarily by small and medium-sized businesses and frontline-worker subscriptions. Premium products including Copilot, Microsoft 365 E5 and the recently launched E7 package helped increase average revenue per user.

Microsoft 365 Consumer cloud revenue advanced 24%, or 22% in constant currency, while consumer subscriptions increased 7%. LinkedIn revenue grew 12%, or 10% in constant currency, mainly because of stronger Marketing Solutions sales. Dynamics 365 revenue increased 13%, or 12% after excluding currency movements.

The segment generated operating income of $21.9 billion, an increase of 15%. Its operating margin expanded to 58%, even as rising Microsoft 365 Copilot usage and continued product-development investment affected gross margins.

Windows and Xbox Revenue Decline

More Personal Computing remained Microsoft’s weakest major division. Segment revenue declined 4% to $12.9 billion, or 5% in constant currency.

Windows OEM and Devices revenue fell 7%, with Windows OEM revenue alone declining 5%. Microsoft attributed the decrease to weaker PC demand and a difficult comparison with the previous year, when sales benefited from preparations for the end of Windows 10 support. The company noted that manufacturers and distributors continued to accumulate inventory because of rising component prices.

Xbox content and services revenue dropped 10%, compared with a prior-year quarter that included stronger first-party game releases. Microsoft also recorded impairment charges related to Xbox during the period. The company said it was adjusting the gaming division’s content portfolio, platform and operations and expected the business to return to growth during fiscal 2027.

Search advertising revenue excluding traffic-acquisition costs increased 10%, or 9% in constant currency, supported by higher revenue per search and increased activity across Bing and Edge. More Personal Computing operating income fell 14% to $2.7 billion, reducing the segment’s operating margin to 21%.

AI Spending Pushes Free Cash Flow Down 23%

Microsoft’s quarterly operating cash flow increased 30% to $55.4 billion as cloud billings and customer collections remained strong. Free cash flow, however, fell approximately 23% to $19.6 billion as the company sharply increased spending on AI infrastructure.

Total capital expenditure reached $41 billion, including finance leases, while cash payments for property and equipment more than doubled to $35.8 billion from $17.1 billion a year earlier. Roughly two-thirds of quarterly capital expenditure was allocated to shorter-lived assets, primarily CPUs and GPUs used for both AI and conventional cloud workloads.

Microsoft added 31 data centres across five continents during the quarter, bringing the full-year total to 88. The company also added approximately one gigawatt of capacity during the period and remained on track to roughly double its overall computing capacity within two years.

Despite the increased spending, Microsoft returned $10.2 billion to shareholders through dividends and share repurchases during the quarter. Full-year capital returned to shareholders exceeded $43 billion.

Microsoft FY2026 Revenue Reaches $331.8 Billion

For the full fiscal year, Microsoft generated revenue of $331.8 billion, up 18%, or 16% in constant currency. Operating income increased 21% to $155.2 billion, while GAAP net income rose 31% to $133.7 billion.

Full-year GAAP diluted EPS increased 32% to $17.95. Excluding the impact of OpenAI investments, adjusted net income was $128.8 billion and adjusted EPS was $17.28, both representing growth of 22%. Microsoft’s OpenAI investments produced a net gain of nearly $5.0 billion, equivalent to $0.67 per diluted share, during FY2026.

Microsoft Forecasts Continued Azure Acceleration

For the first quarter of fiscal 2027, Microsoft expects total revenue of between $89.85 billion and $90.95 billion, representing year-over-year growth of 16% to 17%.

Intelligent Cloud revenue is forecast at $40.95 billion to $41.25 billion, an increase of 33% to 34%. Microsoft expects Azure revenue to grow approximately 45% in constant currency, with growth accelerating despite continuing capacity constraints.

Productivity and Business Processes revenue is expected to range from $36.7 billion to $37.0 billion, while More Personal Computing revenue is forecast at $12.2 billion to $12.7 billion. Windows OEM and Devices revenue is projected to decline by more than 20%, and Xbox content and services revenue is expected to fall by a mid-single-digit percentage.

Capital expenditure is expected to exceed $50 billion in the September quarter. For the full fiscal year, Microsoft continues to forecast double-digit revenue and operating-income growth, but expects operating margins to decline by less than one percentage point as it expands AI infrastructure. The company also said it expected to remain free-cash-flow positive throughout FY2027.