Microsoft Crushes Earnings as CapEx Comes in Below Expectations, Shares Jump 9%

$Microsoft (MSFT.US)$ reported a strong fiscal Q4 2026, beating expectations on revenue, EPS, and Azure growth. During the earnings call, management revealed that Azure's annual revenue surpassed $100 billion for the first time and issued a lower-than-feared capital expenditure outlook, easing concerns over AI spending and sending the stock up more than 9% in after-hours trading.

Key Financial Highlights

Microsoft reported $89.5 billion in revenue for the quarter, ahead of the $87.6 billion consensus estimate. Earnings per share came in at $4.41, beating expectations of $4.24.

Within the business, Intelligent Cloud revenue reached $36.3 billion, up 26% year over year and above consensus of roughly $35.3 billion. Azure and other cloud services revenue grew 43% in constant currency, exceeding expectations of 40%-41% and accelerating from 35% in the previous quarter.

AI Continues to Drive Cloud Growth

Microsoft said 22 percentage points of Azure's growth came from AI services, up from 16 percentage points in the prior quarter, underscoring AI as the primary growth engine for its cloud business.

CEO Satya Nadella also disclosed that Azure has surpassed $100 billion in annual revenue for the first time, marking a major milestone for Microsoft's cloud platform. Meanwhile, remaining performance obligations (RPO) climbed to $368 billion, up 37% year over year, highlighting continued strength in enterprise AI demand.

CapEx Outlook Eases Investor Concerns

Microsoft spent $34.4 billion on capital expenditures, including finance leases, during the quarter, up 27% year over year.

Looking ahead, management expects calendar-year 2026 capital expenditures of approximately $175 billion, while Q1 FY2027 capex is projected to exceed $50 billion, including the impact of lease reclassification.

Importantly, the outlook came in below investors' expectations. Before the earnings call, the market had generally anticipated Microsoft would maintain or even raise its previously discussed ~$190 billion spending pace, with some analysts projecting capex could approach $195 billion. While Microsoft emphasized that its AI infrastructure investment strategy remains unchanged, the more moderate spending outlook eased concerns that AI investment would continue accelerating unchecked, becoming a key catalyst behind the stock's sharp after-hours rally.

Takeaway

Microsoft delivered a near-flawless quarter. Revenue, earnings, and Azure growth all exceeded expectations, while Azure's annual revenue surpassing $100 billion further demonstrates that AI investments are translating into meaningful commercial growth.

At the same time, unlike recent earnings from Alphabet and Meta, Microsoft's capital expenditure guidance came in below market fears, reassuring investors that the company can sustain rapid AI expansion without significantly increasing spending beyond expectations.

The combination of accelerating cloud growth and a more disciplined capex outlook pushed Microsoft shares up more than 9% after hours and could provide a fresh catalyst for semiconductor, memory, optical networking, and broader AI infrastructure stocks.

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