Microsoft Q4 FY2026: Record Revenue, Strong Cloud Growth, AI Investments Key metrics - Revenue: USD 90.0B vs consensus USD 87.6B (+2.7%) - EBITDA: USD 51.6B vs consensus USD 51.7B (-0.2%) - EBIT: USD 40.6B vs consensus USD 39.0B (+4.0%) - EPS: USD 4.74 vs consensus USD 4.24 (+11.8%) Executive summary - Q4 FY2026 revenue reached $90.0 billion, up 18% (17% in constant currency), with operating income up 18% to $40.6 billion. - GAAP net income rose 31% to $35.8 billion; non-GAAP net income rose 22% to $35.3 billion, excluding OpenAI investment impacts. - Microsoft Cloud revenue grew 27% to $59.3 billion, with Azure up 43%. - Commercial remaining performance obligation surged 84% to $678 billion. - Fiscal year 2026 revenue surpassed $331 billion, up 18%, with operating income up 21%. Financial performance For the quarter ended June 30, 2026, revenue was $90.0 billion, up 18% (17% in constant currency). Operating income was $40.6 billion, up 18%. Net income was $35.8 billion (GAAP, up 31%) and $35.3 billion (non-GAAP, up 22%). Diluted EPS was $4.81 (GAAP, up 32%) and $4.74 (non-GAAP, up 23%). For fiscal year 2026, revenue was $331.8 billion, up 18% (16% in constant currency). Operating income was $155.2 billion, up 21% (19% in constant currency). Net income was $133.7 billion (GAAP, up 31%) and increased 22% (20% in constant currency) on a non-GAAP basis. Diluted EPS was $17.95 (GAAP, up 32%) and increased 22% (21% in constant currency) on a non-GAAP basis. Gross margin percentage was 67% in Q4, down year-over-year due to mix shift to Azure and AI infrastructure investments. Operating margins increased slightly to 45%. Cash flow from operations was $55.4 billion in Q4, up 30%, and free cash flow was $19.6 billion. Capital expenditures were $41 billion. Outlook and guidance For Q1 FY2027, Microsoft expects total revenue between $89.85 billion and $90.95 billion, growth of 16%-17%. COGS expected at $29.6-$29.8 billion (up 23%-24%), operating expense at $16.8-$16.9 billion (up 7%-8%). Operating margins expected relatively flat year-over-year. For Q1 FY2027, Intelligent Cloud revenue expected at $40.95-$41.25 billion (up 33%-34%), with Azure growth of approximately 45% in constant currency. Productivity and Business Processes revenue expected at $36.7-$37 billion (up 11%-12%). More Personal Computing revenue expected at $12.2-$12.7 billion. For Q1 FY2027, effective tax rate expected approximately 20%, CapEx over $50 billion, and other income/expense roughly negative $100 million excluding OpenAI impacts. For FY2027, Microsoft expects capital expenditures to grow year-over-year, operating margins down less than a point, and remains free cash flow positive. FX expected to decrease full-year revenue growth by less than one point. Management commentary Satya Nadella: 'It was a very strong close to what was a record fiscal year for us.' He emphasized two goals: ensuring AI empowers every person and every organization to build their own continuous learning loop without outsourcing core IP. Amy Hood: 'We delivered a strong quarter to close out the fiscal year, highlighted by Microsoft Cloud revenue of $59.3 billion, up 27% year-over-year.' Amy Hood noted that demand continues to exceed available supply, and efficiency gains are quickly monetized in the quarter. Satya Nadella discussed the importance of model choice and protecting corporate IP, emphasizing that the harness is separate from the model, making any model swappable. Segment performance Productivity and Business Processes: Q4 revenue $37.8 billion, up 14%. Microsoft 365 Commercial cloud revenue up 16% on adjusted basis (14% reported). Microsoft 365 Consumer cloud up 24%, LinkedIn up 12%, Dynamics 365 up 13%. Intelligent Cloud: Q4 revenue $39.3 billion, up 32% (31% in constant currency). Azure and other cloud services revenue up 43%. More Personal Computing: Q4 revenue $12.9 billion, down 4% (5% in constant currency). Windows OEM and Devices revenue down 7%, Xbox content and services down 10%, Search advertising ex-TAC up 10%. Capital allocation Microsoft returned $10.2 billion to shareholders in Q4 FY2026 through dividends and share repurchases. For the full fiscal year, total cash returned to shareholders exceeded $43 billion. In fiscal year 2026, Microsoft repurchased 36 million shares for $16.7 billion and declared dividends totaling $27.0 billion. As of June 30, 2026, $40.6 billion remained under the $60 billion share repurchase program. Capital expenditures were $41 billion in Q4, including higher component pricing. For FY2026, additions to property and equipment were $115.9 billion. Strategic priorities Microsoft's R&D efforts focus on three ambitions: reinvent productivity and business processes, build the intelligent cloud and intelligent edge platform, and create more personal computing experiences. Investments are directed at AI, security, cloud services, gaming, and leveraging Windows to fuel cloud business. Microsoft launched the Secure Future Initiative in November 2023, focusing on cybersecurity protection. Microsoft has a long-term strategic partnership with OpenAI, extended in October 2025, and holds rights to OpenAI's IP for integration into its products. Risks and uncertainties Microsoft faces intense competition across all markets, including AI products from hyperscalers, open-source offerings, and frontier model providers. Cloud and AI investments require substantial capital and depend on uncertain customer demand, technological developments, and regulatory conditions. Datacenter operations depend on availability of land, energy, and components, with few qualified suppliers for certain parts. Microsoft has experienced cybersecurity incidents, including a nation-state attack in late 2023, and faces evolving threats from AI-enabled attacks. The IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest for tax years 2004-2013 related to transfer pricing. Legislative and regulatory actions, including AI regulations like the EU AI Act, could increase costs or restrict opportunities. Q&A highlights Satya Nadella noted that M365 Copilot has over 30 million paid seats with strong acceleration, and usage intensity is at the same level as everyday communication tools like Outlook or Teams. Amy Hood stated that the company has an incredibly diverse book of business by geo, segment, and industry, providing flexibility to manage through demand changes. Satya Nadella explained that Project Perception creates an agentic system with red, blue, and green team agents for cyber defense, using signals from Microsoft Entra, Defender, network, and app security. Amy Hood mentioned that her math for ROI on CapEx has not changed, but confidence in TAM expansion and margin levers has increased, including model diversification and silicon investments.