Microsoft reported quarterly earnings on Wednesday that soothed investor worries about its massive spending on artificial intelligence infrastructure, sending shares up more than 7% in after-hours trading. The software giant posted $90 billion in revenue for the quarter ended June 30, 2026, up 18% year over year, driven by strong cloud and AI adoption.
Cloud and AI revenue surge
Microsoft Cloud revenue reached $59.3 billion in the fourth quarter, a 27% increase from the same period last year. Azure revenue grew 43% year over year, and for the first time, Azure revenue surpassed $100 billion for the full fiscal year.
"This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation," said Chairman and CEO Satya Nadella.
The company's AI assistant, Microsoft 365 Copilot, now has over 30 million paid seats, a 50% increase from the previous quarter. That figure represents a fraction of the estimated 450 million Microsoft 365 commercial customers. Microsoft has imposed usage-based billing on top of seat-based charges for Copilot.
Nadella added: "We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results."
Profitability and cash flow
Operating income for the quarter was $40.6 billion, up 18%. Net income reached $35.8 billion, a 31% increase, and diluted earnings per share came in at $4.81, up 32%. The quarter included a gain of approximately $3.2 billion from Microsoft's investment in AI company Anthropic.
For the full fiscal year ended June 30, 2026, revenue totaled $331.8 billion, up 18%. Operating income was $155.2 billion, up 21%. Net income reached $133.7 billion, a 31% increase, and full-year diluted EPS was $17.95, up 32%.
Quarterly operating cash flow was $55.44 billion, up 30% year over year.
Capex spending and capacity constraints
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Capital spending in the fourth quarter hit $41 billion, up 70% year over year and roughly 28% higher than the $31.9 billion spent in the previous quarter. For the full fiscal year, capex totaled $115.95 billion, up nearly 80% from $64.55 billion in fiscal 2025.
About two-thirds of the capex went into short-lived assets such as CPUs and GPUs. Finance leases accounted for approximately $5.6 billion of the quarterly spending. Property and equipment spending in Q4 was $35.80 billion, more than double the $17.08 billion spent in the year-ago quarter.
CFO Amy Hood noted on the investor call that customer demand for cloud services exceeds available capacity. The commercial remaining performance obligation grew 84% to $678 billion, indicating a large backlog of future business.
"Commercial remaining performance obligation grew 84 percent to $678 billion," Hood said.
Analyst Gadjo Sevilla of Emarketer said the capex figure was the most closely watched metric in the report. "Microsoft's capex number is arguably the most closely watched line in this report, and it arrived with a case for optimism rather than alarm," Sevilla said.
AI spending risks remain
Despite the strong results, concerns about the sustainability of AI-related spending persist. Meta's disappointing financial results earlier this week served as a reminder that heavy investment in AI does not always yield immediate returns.
Fitch Ratings warned on Monday that an AI market correction poses a major credit risk. The rating agency said: "The combination of revenue uncertainty and the extent to which capital markets and economies have become intertwined with AI have created a vulnerability for credit in the event of a re-evaluation of long-run returns potential."
Fitch added: "Very short-term spikes in market volatility for individual equities and tech-heavy stock indices have already occurred, but a larger, more protracted correction could have wider market, macro and credit effects depending on its scale, duration and contagion."
Microsoft's strong cash flow and revenue growth helped ease some of those fears, but the scale of its buildout remains enormous. The company claims many potential customers are waiting for datacenter capacity to become available.