Microsoft Azure Q4 revenue surges 41%, tops $100 billion in annual revenue

Microsoft's fourth quarter earnings were better-than-expected, Azure revenue for fiscal 2026 topped $100 billion and net income was boosted by investments in OpenAI and Anthropic.

The quarter included a bevy of moving parts. Microsoft reported fourth quarter earnings of $35.8 billion, or $4.81 a share, on revenue of $90 billion, up 18% from a year ago. Non-GAAP fourth quarter earnings were $4.74 a share.

Wall Street was expecting Microsoft to report fourth quarter earnings of $4.24 a share on revenue of $87.63 billion.

Moving parts included:

• Net income was boosted by $2 billion in the quarter from the investments in OpenAI and Anthropic.
• OpenAI gains were $3.4 billion. Anthropic delivered a gain of $3.2 billion.
• Severance charges from Xbox hit diluted earnings by 6 cents a share.

Satya Nadella, CEO of Microsoft, said the company is "advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results."

Azure revenue in the fourth quarter was up 43% from a year ago accelerating from 40% in the third quarter.

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On a conference call, Nadella said:

• "We added 31 new data centers across five continents this quarter, bringing the total to 88 this year. As we expand our footprint in response to accelerating demand, we are also bringing capacity online faster than ever."
• "We are building a new model system where the harness, context, memory, and action space are separate from any one model family, thereby moving the frontier on the cost-to-outcome curve."
• "The number of customers with more than 50,000 seats increased over 7x year over year, and the number of enterprise customers deploying Copilot to the majority of their information workers grew nearly 75% quarter over quarter."
• "The goal is to have the firm be in control of their own destiny in terms of what I describe as building their human capital and their token capital."

Capital expenditures for the fourth quarter were $41 billion, up 70% from the previous year. The company noted: "Roughly two-third of capital expenditures were for short-lived assets, primarily CPUs and GPUs." Microsoft's free cash flow in the fourth quarter was $19.6 billion, down 23% from a year ago.

For fiscal 2026, Microsoft spent more than $145 billion on CapEx.

Microsoft Cloud revenue in the quarter was $59.3 billion, up 27% from a year ago. CFO Amy Hood said the quarter closed strong.

By the numbers:

• Revenue from productivity and business processes was $37.8 billion, up 14% from a year ago.
• Microsoft 365 Commercial cloud revenue was up 16% from a year ago. Microsoft 365 Consumer cloud revenue was up 24% from a year ago.
• Intelligent Cloud revenue was $39.3 billion, up 32% from a year ago. Azure and other cloud services revenue was up 43% in the fourth quarter.
• Windows and devices revenue fell 7%.

For fiscal 2026, Microsoft reported net income of $133.7 billion, or $17.95 a share, on revenue of $331.8 billion, up 18% from a year ago.

Here's the outlook: