Microsoft shares moved 8% higher in extended trading on Wednesday after the software maker disclosed strong fiscal fourth-quarter revenue and called for steady 2026 capital expenditures.
Microsoft's revenue grew about 18% year over year in the quarter, which ended on June 30, according to a statement. Net income of $35.77 billion, or $4.81 per share, increased from $27.23 billion, or $3.65 per share, in the same quarter a year ago. Microsoft cited a $3.2 billion gain from its investment in artificial intelligence lab Anthropic and lower-than-expected costs tied to its first-ever voluntary retirement program. Meanwhile, its Xbox gaming business received an impairment charge.
As of Wednesday's close, the software maker's shares have given up 19% so far in 2026, while the S&P 500 index has gained about 7%. Investors have squeezed longstanding software stocks this year, acting on fears of disruption from generative artificial intelligence models.
Deutsche Bank analysts, who recommend buying Microsoft stock, said in a note last week that the company is confronting "some concentration risk" with its OpenAI relationship, especially with the ascent of open-source models. Microsoft said in January that around 45% of its $625 billion in commercial remaining performance obligations were tied to OpenAI. CEO Satya Nadella has been trying to balance computing capacity needs across the Azure cloud, research and applications such as the Microsoft 365 Copilot assistant.
Key Financial Figures
- Commercial remaining performance obligations rose 8% to $678 billion from the previous quarter, driven by commitments from clients other than AI model developers.
- Capital expenditures and finance leases for the quarter reached $41 billion, up 69%.
- Free cash flow fell 23% to $19.64 billion; CFO Amy Hood said she expects positive free cash flow in fiscal 2027.
- Fiscal first-quarter revenue guidance is $89.85 to $90.95 billion, up 16% at the midpoint, versus a $89.66 billion analyst estimate.
- Intelligent Cloud segment revenue, featuring Azure, was $39.31 billion, up 31.6% year over year, above the $38.16 billion consensus.
- Azure growth accelerated to 43% (43% at constant currency), up from 40% in the prior quarter; fiscal 2026 Azure revenue exceeded $100 billion for the first time, up 41%.
- Productivity and Business Processes segment revenue, including Office, Dynamics and LinkedIn, was $37.85 billion, up 14.3%, above the $37.19 billion consensus.
Hood reiterated plans for 2026 capital spending but said Microsoft will lengthen the useful life of office and data center buildings to 25 years from 15, and that more future data center leases will appear as operating leases instead of finance leases. The adjustment will lead to roughly $175 billion in capital expenditures and finance leases, Hood said. For fiscal 2027, she said she sees further growth in capital expenditures, citing "demand signals across our portfolio." Hood also projected 45% Azure growth at constant currency for the fiscal first quarter, above the 41.4% StreetAccount consensus. Microsoft said the Microsoft 365 Copilot work assistant surpassed 30 million paid seats, up from more than 20 million as of April.
Source: CNBC
