Microsoft Eases AI Spending Fears as Q4 Earnings Beat Expectations, Cloud Growth Outlook Accelerates

After weeks of Wall Street concerns over the return on AI investments, Microsoft delivered one of its strongest quarterly earnings reports, providing a convincing answer to investor skepticism. Not only did the company significantly beat revenue and profit expectations, but Azure also recorded its fastest growth in four years. More importantly, Microsoft proactively reduced its FY2027 capital expenditure guidance from US$190 billion to US$175 billion, easing market fears that AI spending was spiraling out of control. Following the earnings release, Microsoft shares surged more than 8% in after-hours trading.

For the full 2026 fiscal year, Microsoft reported total revenue of US$331.8 billion, up 18% year-over-year, while net profit reached US$133.7 billion, representing 31% annual growth. In the fourth fiscal quarter, revenue came in at US$90.01 billion, an 18% increase from a year earlier and well above analysts' expectations of US$87.7 billion.

Anthropic investment delivers an unexpected boost. The quarter included a US$3.2 billion investment gain resulting from the appreciation in Microsoft's equity stake in AI laboratory Anthropic.

The company's Azure cloud business, which attracted the most market attention, delivered an outstanding performance. During the fourth quarter, Azure and other cloud services revenue grew 43% year-over-year, accelerating from 40% in the previous quarter and comfortably exceeding analysts' expectations of 39.6% to 40%. This marked Azure's fastest quarterly growth since early 2022. The CEO stated that Azure annual revenue surpassed US$100 billion for the first time this year, while paid seats for Microsoft 365 Copilot exceeded 30 million, reflecting customers' confidence in Microsoft's ability to drive their AI transformation.

Microsoft also disclosed that its cloud business backlog reached US$678 billion at the end of the quarter, up from US$627 billion in the previous quarter, representing approximately US$50 billion in additional future sales commitments. The company emphasized that these new commitments primarily came from enterprise customers outside of the leading U.S. AI model developers, indicating that demand for AI is spreading across a broader range of industries.

Hundreds of enterprise customers have already purchased tens of thousands of seats of the premium E7 productivity suite. GitHub Copilot has now reached 50 million users. Microsoft is also accelerating enterprise Copilot deployments through channel partners such as Accenture, with a single deal covering 740,000 seats.

Market Insight:

Microsoft's AI business expansion still faces structural challenges. Deutsche Bank noted last week that Microsoft's relationship with OpenAI presents a degree of concentration risk, particularly as open-source AI models continue to gain traction. Microsoft previously disclosed in January that approximately 45% of its US$625 billion in commercial remaining performance obligations were related to OpenAI.