Microsoft Q4 tops estimates, steady capex calms AI spending fears
Microsoft's fiscal fourth-quarter results beat expectations as Azure growth accelerated to 43%, and a steady capital expenditure outlook eased investor concerns about runaway AI infrastructure costs.
Microsoft reported fiscal fourth-quarter revenue of $90 billion, up 18% year over year and beating the $87.6 billion consensus estimate. Adjusted earnings per share reached $4.74, a 30% increase. The stock rallied 9% after hours, offering respite for shares that had fallen 24% over the past year on fears the company was losing the artificial intelligence race.
The upside was driven primarily by the Azure cloud unit, where revenue grew 43% on both a reported and constant currency basis. Analysts had expected growth closer to 40%. Management attributed the outperformance to bringing new capacity online faster than anticipated, having added 31 new data centers across five continents this quarter for a total of 88 this year.
The company invested $41 billion in capital expenditures during the quarter, up 70% year over year. Management left its calendar year 2026 spending expectations unchanged, aside from a technical accounting adjustment that revised the figure to $175 billion from $190 billion. This discipline stood in contrast to peers, as Microsoft generated $19 billion in free cash flow compared to Alphabet's negative free cash flow and Meta's $1.7 billion.
Investors have worried that hyperscalers are overly reliant on a handful of frontier AI developers like OpenAI and Anthropic for their massive infrastructure investments. Microsoft pushed back on that narrative, noting that a $51 billion sequential increase in commercial remaining performance obligation was driven by customer commitments outside of those AI model developers.
Looking ahead, Microsoft guided to even faster Azure growth of 45% in constant currency for the first quarter of fiscal 2027, well above the 42% Street estimate. Total revenue guidance of $89.85 billion to $90.95 billion also surpassed consensus. Additionally, CEO Satya Nadella teased that a Copilot "super app" is arriving later this quarter, as the company reported paid seats for the AI assistant surpassed 30 million, up from 20 million three months prior.
Despite the strong quarter, risks remain. The More Personal Computing segment, which includes Windows and gaming, projected revenue of $12.2 billion to $12.7 billion, falling short of the $12.9 billion consensus. Questions also linger about the long-term competitive positioning of Copilot against rival AI tools, even as adoption metrics improve.
