This whole week built toward one question. The suppliers - KLA, Teradyne, SK hynix, Vertiv - all reported acceleration. But all of them live off the cheques of four companies, and the question was whether those cheques convert into revenue.
Tonight Microsoft answered.
What Was Reported
| Metric | Result | Change | Consensus |
|---|---|---|---|
| Revenue | $90.0 billion | +18% | about $87.7 billion |
| Operating income | $40.6 billion | +18% | - |
| GAAP net income | $35.8 billion | +31% | - |
| GAAP EPS | $4.81 | +32% | - |
| Adjusted EPS | $4.74 | +23% | $4.24 |
A 50-cent beat on adjusted EPS, and more than two billion dollars on revenue.
And for the full fiscal year: revenue of $331.8 billion (+18%) and operating income of $155.2 billion.
But those are not the numbers that decide the reaction.
Azure: 43% - the Answer to the Week's Question
Management guided to 39%-40% Azure growth in constant currency. The result: 43%.
And it is not just a quarter: Azure crossed $100 billion in revenue in a single fiscal year for the first time. Microsoft Cloud as a whole - Azure, commercial 365 and the rest of the cloud services - took in $59.3 billion in the quarter, growth of 27%.
Why this number settles the debate
Microsoft's capital expenditures are a bet, not an expense. Quarterly guidance called for over $40 billion - the highest quarterly figure the company has ever guided to - and roughly $190 billion for the calendar year. And the question that accompanied the whole season: does that money become revenue, or burn in an arms race. Azure growing above its guide - while investment is at a record - is the sharpest possible answer: demand is running ahead of capacity. A company does not beat its own growth guide while building capacity nobody is buying.
And another figure from the same story: Microsoft 365 Copilot crossed 30 million paid seats. That is the second AI revenue stream - not renting out compute, but a software subscription sitting on the existing user base.
The Breakdown: the New Business Pulls, the Old One Drags
| Segment | Revenue | Change |
|---|---|---|
| Intelligent Cloud (incl. Azure) | $39.3 billion | +32% |
| Productivity and Business Processes | $37.8 billion | +14% |
| More Personal Computing | $12.9 billion | -4% |
And within the segments:
- Microsoft 365 Commercial cloud grew 14% (16% adjusted for an unusual prior-year comparable), and Consumer cloud 24%
- Windows OEM and Devices fell 7%
- XBOX content and services fell 10% - and the quarter also included severance and impairment charges in XBOX
- Search advertising (ex-TAC) rose 10%
The picture is sharp: the cloud grows 32%, personal computing contracts. Microsoft is no longer a Windows company with a cloud - it is a cloud company that also has Windows.
The Anthropic Gain - and the Footnote That Matters
Inside the quarter sits an unusual line: a $3.2 billion gain on Microsoft's investment in Anthropic.
The company detailed that discrete items together contributed 27 cents to EPS versus guidance: the Anthropic gain and lower-than-expected Voluntary Retirement Program expenses, partially offset by severance and XBOX impairments. And excluding all of these, per the company, results still exceeded expectations on revenue, operating income and EPS.
Two notes on this line
First, the accounting distinction. A gain on an investment is a revaluation - not cash generated by operations. It is real, but it does not repeat and says nothing about the business. That is why the adjusted figure ($4.74), which strips out the impact of the AI-lab investments, is the right measure of earnings power. Second, the interesting structure. Microsoft is invested in both OpenAI and Anthropic - the two leading AI labs. From the report's side, that is double exposure to the sector's rising value; from the business side, Anthropic is also a customer of cloud services. It is a structure in which investor, supplier and customer are hard to separate - worth remembering when reading the profit line.
The Capex - the Other Side of Every Report This Week
Microsoft's calendar-year capex guidance - roughly $190 billion - includes, per coverage, about $25 billion attributed to higher component pricing.
And we saw that money this week from the other side:
| Who | What it is for them |
|---|---|
| SK hynix | a record 76% operating margin |
| Seagate | gross margin from 37% to 52% |
| KLA + Teradyne | the production and test equipment |
| Vertiv + Bloom Energy | the power and cooling |
| Microsoft | the investment funding all of them |
What Microsoft records as cost inflation, the memory makers record as record profit. Same dollar, two sides.
The Bull Thesis
Whoever reads it positively will point first to Azure above guidance - 43% against 39%-40% - while investment is at a record. That is the proof that demand runs ahead of capacity.
Beyond that: a beat on every line, a cloud that crossed $100 billion for the year, Copilot with 30 million paid seats creating a second AI revenue layer, and $10.2 billion returned to shareholders in the quarter.
And the breadth: consumer (365 cloud +24%) and advertising (+10%) are growing too. This is not a one-engine company.
The Bear Thesis
Whoever reads it critically will note first the size of the bet. Roughly $190 billion of capex in a calendar year is unprecedented, and the depreciation on it will weigh on margins for years - even if the revenue keeps coming. The cheque is written today; the accounting bill arrives in installments.
Second, More Personal Computing is contracting - minus 4%, with declines in Windows and XBOX and impairments alongside. The old business is not merely slowing; it is receding.
Third, GAAP earnings are inflated by one-time items - 27 cents of the beat comes from the Anthropic revaluation and adjustments, not from operations.
And fourth, dependence on the AI cycle. If cloud adoption slows, capacity built in advance turns from strength into burden - and today's 43% is exactly the bar from which disappointment gets easy.
The debate in one line
The bulls see Azure above guidance while investment peaks, a $100 billion-a-year cloud, Copilot at 30 million seats and a beat on every line. The bears see $190 billion of capex whose depreciation has not yet begun to bite, personal computing receding, and a profit partly built on a one-time revaluation. Both sides are reading the same report.
My Angle
A personal opinion of Ilan Abramov - not advice, not a recommendation
What catches me in this report is that it answers the week's question - and in one direction.
All season we asked: the suppliers report acceleration - KLA, Teradyne, SK hynix, Vertiv - but is the buyer on the other side actually getting value? If the answer is no, this week's whole chain of reports is an order bubble. If yes - all of them are validated at once.
Azure at 43% against a 39%-40% guide is a sharp yes. A company does not beat its own growth guide while building capacity nobody wants. Demand is running ahead of supply - which is exactly what every supplier report this week implied from its side.
And the second thing I flag is the Anthropic gain - not for the amount, for the structure. Microsoft is invested in the two leading AI labs, sells them compute, and books a gain when their value rises. It is a self-reinforcing structure - and worth remembering that it works in both directions. The day the labs' value falls, the same line runs in reverse.
And what I will follow: the gap between the pace of investment and the pace of depreciation. Today's capex is tomorrow's depreciation, and depreciation is margin pressure that arrives with a built-in lag. As long as Azure grows above 40%, the math works easily. If it drifts toward 30%, those $190 billion will look very different. The bar for what comes next was set tonight - and it is high.
Summary
Microsoft closed fiscal 2026 with an answer to the question that accompanied the whole earnings season: revenue of $90.0 billion (+18%), adjusted EPS of $4.74 against a $4.24 estimate, and above all - Azure growing 43%, above management's 39%-40% guide, and crossing $100 billion in a fiscal year for the first time.
Microsoft Cloud took in $59.3 billion in the quarter (+27%), Copilot crossed 30 million paid seats, and the company returned $10.2 billion to shareholders. Inside the report also sits a one-time $3.2 billion gain on the Anthropic investment - which should be excluded when assessing earnings power - and XBOX impairments on the other side.
The question for the investor is no longer whether the investment converts into revenue - this quarter answered that. The question is how long Azure can hold growth above 40%, when the bar rises every quarter and today's investment becomes tomorrow's depreciation.
Sources: Microsoft's official results announcement for the fourth quarter and fiscal year 2026 (July 29, 2026), as filed with the U.S. Securities and Exchange Commission on Form 8-K, including revenue, GAAP and adjusted earnings, Azure and Microsoft Cloud growth, the segment breakdown, the discrete items including the gain on the Anthropic investment and the XBOX impairments, and the return to shareholders; CEO Satya Nadella's and CFO Amy Hood's remarks from the release; analyst consensus and prior management guidance. Data accurate as of the time of writing. The chart is shown in real time via TradingView. Nothing herein constitutes a forecast, recommendation or advice - see the full disclaimer at the bottom of the page.