The technology giant’s Azure cloud-computing division recorded revenue growth of 43% in its fiscal fourth quarter, surpassing Wall Street expectations of 39.98%, according to Visible Alpha data. The performance helped ease investor concerns over Microsoft’s massive spending on data centers and AI infrastructure.
Shares of the Redmond, Washington-based company rose about 4% in extended trading following the results.
Microsoft CEO Satya Nadella said the company’s investments in artificial intelligence were driving broader customer adoption across its products and services.
“This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation,” Nadella said.
The strong results provide reassurance that Microsoft’s enormous AI-related expenditures are generating demand rather than simply increasing costs. Investors had been concerned that rising infrastructure spending could pressure cash flow or that AI tools could eventually weaken demand for Microsoft’s long-established productivity software.
Azure Keeps Pace in Intensifying Cloud Competition
Microsoft’s results came shortly after rival Google Cloud delivered a major growth surge, reporting an 82% increase in cloud revenue that exceeded market expectations.
The performance sparked questions about whether Google was gaining ground against Azure, but analysts said Microsoft’s latest numbers showed it remained competitive.
“It seemed kind of like Google was taking market share from everybody and they could catch up to the market share of Azure if they keep on that trajectory,” said Dave Wagner, portfolio manager at Aptus Capital Advisors. “But what Azure is showing us is that it’s staying right there in the race.”
Microsoft reported that its contracted cloud backlog reached $678 billion at the end of the quarter, up from $627 billion in the previous period. The company said the approximately $50 billion increase in future sales commitments came from customers outside the leading U.S. AI model developers.
Copilot Adoption Accelerates
Microsoft’s AI assistant strategy also gained momentum, with paid Microsoft 365 Copilot subscriptions rising to more than 30 million seats, up from 20 million in the previous quarter.
The figure exceeded analyst expectations of 26.9 million paid seats, based on estimates compiled by Reuters from projections by Citi, Morgan Stanley, BNP Paribas and Wells Fargo.
The company has been using its extensive corporate customer base to accelerate adoption of the $30-per-month Copilot service, including through partnerships such as its agreement with Accenture earlier this year.
Microsoft is also reducing its reliance on OpenAI technology by incorporating models from Anthropic into some offerings while continuing to develop its own artificial intelligence systems.
Heavy AI Spending Continues Despite Cash Flow Concerns
Microsoft has committed to spending heavily on AI infrastructure, with planned capital expenditures of about $190 billion this calendar year. The company’s spending forms part of a broader technology industry investment wave expected to exceed $700 billion as major firms compete to build AI capacity.
The spending spree has raised concerns about potential overbuilding of data centers and pressure on free cash flow.
Microsoft reported free cash flow of $19.6 billion for its fiscal 2026 fourth quarter, exceeding analyst expectations of $13.44 billion but declining 23% from the previous year.
Capital spending reached $41 billion during the April-June quarter, more than 70% higher than the same period a year earlier and slightly below analyst estimates of $42.37 billion. The company spent $31.9 billion in the previous quarter.
More investment may still be ahead. In a securities filing, Microsoft disclosed $329.1 billion in data center leases that have not yet started. Those leases are scheduled to begin between fiscal years 2027 and 2033, with terms ranging from one to 20 years.
Jonathan Neilson, Microsoft’s vice president of investor relations, said the timing of infrastructure commitments can vary depending on customer demand.
“They will last many, many, many years. It can be lumpy even in terms of when leases are signed,” Neilson said. “Again, it always comes back to the demand signal we’re seeing.”
Capacity Challenges Remain as AI Demand Expands
Despite Azure’s strong performance, Microsoft has acknowledged that cloud growth is being limited by shortages in computing capacity, a challenge the company expects could continue through the end of 2026.
The shortage has forced Microsoft to make strategic choices between using computing resources for its own AI products, including Microsoft 365 Copilot, and providing Azure capacity to external customers.
Some analysts believe concerns surrounding Microsoft’s AI spending are overstated, pointing to continued demand growth and the company’s efforts to expand capacity through partnerships beyond its own infrastructure investments.
Those efforts include agreements with external AI companies, including a recent partnership with France-based Mistral.
Although Microsoft remains one of the weaker performers among the so-called “Magnificent Seven” group of major technology companies, with shares down about 18% so far this year, the latest results strengthened confidence in its AI strategy.
Revenue Growth Beats Expectations
Microsoft reported overall quarterly revenue of $90 billion, an 18% increase from the previous year and above analyst expectations.
Excluding the impact of investments in OpenAI, the company posted earnings of $4.74 per share, beating expectations of $4.24.
The results suggest that Microsoft’s large-scale AI investment campaign is beginning to translate into stronger cloud demand, even as investors continue to watch spending levels and the long-term returns from artificial intelligence.