Microsoft Corporation

Microsoft reported quarterly revenue of $90 billion, up 18% year over year and 17% in constant currency. Gross margin dollars increased 15%, operating income increased 18%, and EPS was $4.74, up 23% when adjusted for the impact of the OpenAI investment. Company gross margin was 67%, down year over year, and operating margin was 45%, slightly up year over year. For the full fiscal year, revenue surpassed $331 billion, up 18%, operating income grew 21% to more than $155 billion, Microsoft Cloud revenue surpassed $214 billion, and Azure surpassed $100 billion. Forward guidance for Q1 calls for total revenue of $89.85 billion to $90.95 billion, up 16% to 17%; COGS of $29.6 billion to $29.8 billion; operating expense growth of 7% to 8%; operating margins relatively flat year over year; and CapEx over $50 billion. For FY27, management expects another year of double-digit revenue and operating income growth, operating expenses up in the mid- to high single digits, CapEx up year over year, operating margins down less than 1 point, free cash flow still positive, and an effective tax rate of about 20%.

Satya Nadella framed the quarter as a strong close to a record fiscal year and emphasized Microsoft’s push to build the full AI stack, from infrastructure and models to data, governance, and apps/agents. He repeatedly argued that customers want model choice and control over their own IP, and said Microsoft is designing its platform so models are swappable while memory, context, and action live outside any single model. His tone was confident and expansionary, highlighting rapid AI adoption, new data center buildout, and an “enterprise-wide” shift in how knowledge work, coding, security, and business processes are being wired into Copilot, Foundry, and Agent 365.

Amy Hood said FY26 revenue grew 18% to more than $331 billion and operating income grew 21% to more than $155 billion, reflecting strong demand and operating leverage. For Q4, she cited revenue of $90 billion, gross margin dollars up 15%, operating income up 18%, EPS of $4.74, company gross margin of 67%, and operating margin of 45%; she also pointed to a $0.27 EPS benefit from discrete items, including a $3.2 billion gain from Anthropic and lower VRP expense, partly offset by Xbox severance and impairment charges. She said CapEx was $41 billion in the quarter, with roughly two-thirds in short-lived assets, cash paid for PP&E of $35.8 billion, CFO of $55.4 billion, free cash flow of $19.6 billion, and $10.2 billion returned to shareholders. She also noted the data center useful-life change to 25 years starting in FY27, which shifts more spending to operating leases and changes expected FY27 CapEx to approximately $175 billion, while leaving calendar 2026 CapEx expectations unchanged aside from that reclassification.

Analysts focused on Azure acceleration, AI model choice, Copilot monetization, and whether Microsoft can protect returns if AI capacity becomes oversupplied or hardware costs rise. Management said demand still exceeds supply, but execution improved through efficiency gains in CPU/GPU fleets and faster process times, and those improvements were quickly monetized in-quarter. On model choice and open/custom models, Nadella argued enterprises want control over their own learning loops and that Microsoft’s architecture keeps the harness separate from the model so customers can mix frontier, open, and internal models. On Copilot, management said adoption is shifting from pilots to broader deployments, with usage intensity and ARPU rising via Copilot, E5, E7, and usage-based billing; on cyber, Nadella said Project Perception uses red/blue/green agentic defense and benefits from multimodel resilience and lower cost.