Microsoft Q4 FY2026: Azure up 43%, $35.8B of capex, a 45% margin

Microsoft’s fiscal fourth-quarter 2026 revenue was $90.0 billion, up 18%, and GAAP diluted EPS was $4.81, up 32%. The company does not put guidance in its filings; it gives it on the call. But the filed release does compare the result with that guidance: it says discrete items produced “a benefit of $0.27 on diluted earnings per share” against the April 29 outlook, and that adjusting for them, “we exceeded expectations across revenue, operating income, and diluted earnings per share.” The guidance figures themselves are not in any SEC filing, so the comparison this piece can check is year over year.

The tension in the quarter is between an income statement that held still and a cash-flow statement that did not. Operating margin was 45%, essentially where it was a year ago, while cash spent on property and equipment more than doubled to $35.8 billion. Microsoft (NASDAQ: MSFT) also booked a $3.2 billion gain on its Anthropic investment, which sits inside both its GAAP and its non-GAAP EPS. Meta reported the same evening for the same calendar quarter; see our Meta Q2 2026 analysis.

Microsoft Q4 FY2026 results at a glance

Microsoft’s fiscal year ends June 30, so this was fiscal Q4 and the close of FY2026.

	Q4 FY26	Q3 FY26	Q4 FY25
Revenue	$90,007M	$82,886M	$76,441M
Operating income	$40,603M	$38,398M	$34,323M
Operating margin (our arithmetic)	45.1%	46.3%	44.9%
Other income (expense), net	$3,444M	$942M	$(1,707)M
Net income	$35,766M	$31,778M	$27,233M
Diluted EPS (GAAP)	$4.81	$4.27	$3.65
Diluted EPS (non-GAAP, ex OpenAI)	$4.74	$4.27	$3.86
Azure and other cloud services growth	43%	40%	39%
Commercial RPO	$678B	$627B	n/a
Net cash from operations	$55,441M	$46,679M	$42,647M
Additions to property and equipment	$35,802M	$30,876M	$17,079M

By segment, Intelligent Cloud revenue was $39,306 million, up 32%, with operating income of $15,955 million. Productivity and Business Processes was $37,847 million, up 14%, with operating income of $21,900 million. More Personal Computing was $12,854 million, down 4% (down 5% in constant currency), with operating income of $2,748 million. Microsoft Cloud, a cross-segment measure, was $59.3 billion, up 27%, against $46.7 billion a year earlier.

For the full fiscal year, revenue was $331.8 billion (+18%), operating income $155.2 billion (+21%) and GAAP diluted EPS $17.95 (+32%). CFO Amy Hood calls it “a strong quarter to close out the fiscal year, highlighted by Microsoft Cloud revenue of $59.3 billion, up 27% year-over-year.” In the release, CEO Satya Nadella says Azure revenue “surpassed $100 billion for the first time” this year and that Microsoft 365 Copilot “reached over 30 million paid seats.”

How much of Microsoft’s EPS came from investment gains?

Two investment items sit below the operating line, and they are treated differently.

• OpenAI. Net gains from investments in OpenAI added $480 million to net income and $0.07 to EPS in the quarter, and $4,963 million and $0.67 for the full year. Microsoft excludes these from its non-GAAP figures, which is why GAAP EPS is $4.81 and non-GAAP $4.74. A year earlier the same line was a loss of $1,575 million, so the non-GAAP growth rate (23%) is lower than the GAAP one (32%). The 10-K says Microsoft holds an equity-method interest of approximately 25% in OpenAI on an as-converted basis, and that the fiscal 2026 gains “primarily relate to the dilution gain from the OpenAI Recapitalization.”
• Anthropic. The release names a $3.2 billion gain from our investment in Anthropic among the discrete items behind the $0.27 EPS benefit versus guidance. It is not excluded from non-GAAP EPS, so it is inside the $4.74 as well as the $4.81. The release does not give its per-share value on its own.

The visible result: other income swung to a $3,444 million gain from a $1,707 million loss a year earlier, and net income grew 31% while operating income grew 18%. Both investment items are non-cash revaluations of stakes in private companies, and both can reverse.

Did the operating margin hold through the capex surge?

Yes. Operating income rose 18%, the same as revenue, for a margin of about 45.1% against 44.9% a year ago (our arithmetic). Gross margin rose to $60,482 million from $52,427 million, while operating expenses (R&D, sales and marketing, G&A) grew more slowly than revenue.

The cost of the build-out is already reaching the income statement, through depreciation and a lower Microsoft Cloud gross margin, but revenue growth is absorbing it, and the larger effect so far is in the cash flow. Full-year depreciation expense was $34.3 billion against $22.0 billion in fiscal 2025, per the 10-K, and the 10-K also says the full-year Microsoft Cloud gross margin percentage decreased to 66% “driven by continued investments in AI infrastructure and growing AI product usage.” Server and network equipment carries estimated useful lives of two to six years, far shorter than buildings, so spending weighted toward servers reaches the income statement faster.

How much is Microsoft spending on capex?

Cash additions to property and equipment were $35,802 million in the quarter, against $17,079 million a year earlier, about 110% more (our arithmetic) and about 40% of revenue (our arithmetic). For the full year they were $115,948 million, against $64,551 million.

That cash figure excludes finance leases, which Microsoft uses heavily for data centers. The 10-K shows $24,608 million of right-of-use assets obtained under finance leases in fiscal 2026; added to the cash figure, that is roughly $140.6 billion of capacity put in place or contracted for the year (our arithmetic, mixing a cash measure and a lease-asset measure). The forward commitment is larger still: as of June 30, 2026, the 10-K reports $329.1 billion of additional leases, “primarily for datacenters, that had not yet commenced,” starting between fiscal 2027 and 2033.

Free cash flow, computed as net cash from operations minus additions to property and equipment, was about $19.6 billion, down from about $25.6 billion a year earlier, a decline of about 23% (our arithmetic; the release does not report free cash flow). Microsoft returned $10.2 billion to shareholders in dividends and buybacks in the quarter.

How big is the backlog, and how fast does it convert?

Commercial remaining performance obligation, contracted revenue not yet recognized, rose 84% to $678 billion, up from $627 billion at the end of Q3 (when it was up 99%). The 10-K adds the timing: the commercial RPO has a weighted average duration of approximately 2.3 years, and Microsoft expects to recognize approximately 30% of it over the next 12 months, about $203 billion (our arithmetic).

The filings do not break the backlog down by customer. The 10-K describes the OpenAI partnership, extended in October 2025 and April 2026, but gives no figure for OpenAI’s share of the RPO. How concentrated the backlog is cannot be determined from the filings.

What shrank in the quarter?

More Personal Computing, the segment holding Windows, devices, XBOX and search, fell 4% to $12,854 million, about 14% of revenue (our arithmetic). Windows OEM and Devices revenue fell 7% and XBOX content and services 10%; search advertising excluding traffic acquisition costs grew 10%. The release mentions severance and impairment charges in XBOX among the discrete items, without amounts. The 18% headline growth is the net of Intelligent Cloud at 32% and this segment in decline.

How did Microsoft and Meta compare on the same night?

Both companies reported on July 29, 2026 for the three months ended June 30. The capex and free-cash-flow lines are defined differently by the two companies, so treat the comparison as directional.

	Microsoft (Q4 FY2026)	Meta (Q2 2026)
Revenue	$90.0B	$60.80B
Revenue growth	+18%	+28%
Operating margin	45%, ~flat	31%, from 43%
Cash purchases of property and equipment	$35.80B	$30.12B
As % of revenue (our arithmetic)	~40%	~50%
Free cash flow	~$19.6B (our arithmetic)	$784M (company measure)

Meta’s free cash flow also subtracts finance-lease principal; Microsoft’s figure here does not. On these numbers, Microsoft spent more in cash than Meta and kept both its margin and most of its free cash flow, while Meta grew faster and absorbed the spending in its margin. Microsoft has a named revenue line for the capacity (Azure, +43%); Meta’s return on the spending shows up inside advertising.

What to watch in Q1 FY2027

• Azure growth. 43% this quarter against 40% in Q3; the next print shows whether the step-up holds.
• Operating margin near 45%. Full-year depreciation rose 56% (our arithmetic); the margin is where it starts to show.
• Capex and lease commencements. With $329.1 billion of data-center leases not yet commenced, the finance-lease line matters as much as cash additions.
• Investment marks. How much of EPS comes from OpenAI and Anthropic revaluations, and whether the non-GAAP adjustment still covers only OpenAI.
• More Personal Computing. Whether the 4% decline stabilizes.

Quick answers

How did Microsoft’s Q4 FY2026 compare with its own guidance?

Microsoft’s release says that, adjusting for discrete items worth $0.27 of EPS, including a $3.2 billion Anthropic gain, it “exceeded expectations across revenue, operating income, and diluted earnings per share” relative to its April 29 guidance; the guidance figures themselves are not in any SEC filing. Year over year, revenue rose 18% and GAAP EPS 32%.

What was Microsoft’s EPS in Q4 FY2026?

GAAP diluted EPS was $4.81, up 32%. Excluding $0.07 of net gains from its OpenAI investment, non-GAAP diluted EPS was $4.74, up 23% from $3.86.

How fast did Azure grow in Q4 FY2026?

Azure and other cloud services revenue grew 43%, up from 40% in the prior quarter and 39% a year earlier. For fiscal 2026 it grew 41%, and the CEO says in the release that Azure revenue surpassed $100 billion for the first time.

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Sources and method. Company figures — the income statement, segment results, balance sheet, cash flows, the OpenAI non-GAAP reconciliation, the Anthropic gain, the statement on discrete items versus the April 29 guidance, Azure and Microsoft Cloud growth, commercial RPO, capital returned and the Nadella and Hood quotations — are Microsoft’s own disclosures in Exhibit 99.1 to the Form 8-K filed 2026-07-29 (accession 0001193125-26-323632) for the quarter ended 2026-06-30, read directly from SEC EDGAR and linked above; the filing was accepted at 16:04 ET. The RPO duration and 12-month recognition, full-year depreciation, useful lives, finance-lease assets, leases not yet commenced, the Microsoft Cloud gross margin percentage, full-year Azure growth and the OpenAI ownership come from the Form 10-K filed 2026-07-29 (accession 0001193125-26-323660). Q3 FY2026 and Q4 FY2025 comparatives come from the corresponding 8-K exhibits, linked above. Meta’s figures come from Meta’s own July 29 filing (Exhibit 99.1, accession 0001628280-26-050596), linked above. Microsoft gives its quarterly outlook on the earnings call, not in a filing; no call commentary is used here.

No consensus estimate is included, so this piece makes no claim that the quarter beat or missed expectations; the only comparisons are with Microsoft’s own filed statement about its guidance and with prior periods. This piece makes no claim about the share-price reaction.

Our arithmetic, labelled as such: the operating margins of 45.1%, 46.3% and 44.9%; the ~110% increase in additions to property and equipment and their ~40% share of revenue; the ~$140.6 billion of cash additions plus finance-lease assets; free cash flow of ~$19.6 billion and ~$25.6 billion and the ~23% decline; the ~$203 billion of commercial RPO expected within 12 months; More Personal Computing at ~14% of revenue; the 56% growth in full-year depreciation; and the capex-to-revenue percentages in the Meta comparison. These are approximations built on the disclosed figures, not reported numbers. The interpretation — that the build-out’s cost is reaching the income statement through depreciation and a lower Microsoft Cloud gross margin while revenue growth absorbs it, with the larger effect so far in cash flow, and that investment gains flatter the EPS growth rate — is our analysis, not a company statement, and is not a forecast.

Related: Meta Q2 2026, reported the same evening, and the next day’s Amazon Q2 2026 and Apple Q3 FY2026.

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