Key Points Summary
Microsoft’s financial results for the fourth quarter of fiscal year 2026 (ending June 30) exceeded expectations, with revenue reaching $90 billion (an increase of 18%) and net profit at $35.8 billion (a growth of 31%), mainly driven by its Azure cloud services and AI initiatives such as Copilot. The company’s stock price rose nearly 9% after the report was released, despite a decline of over 15% in the previous two months due to concerns about AI investment. There was a clear divergence among the company’s business segments: the intelligent cloud division performed strongly, while personal computing products saw weaker performance. Microsoft also reduced its capital expenditures and entered into a multi-billion-dollar partnership with French AI company Mistral to expand its presence in Europe.
I. Outperforming Expectations: Cloud Services and AI as Key Drivers
The success of this financial report can be attributed to two key factors:
1. Azure’s Explosive Growth: Annual revenue surpassed $100 billion for the first time, with a 43% increase in the fourth quarter (well above expectations). Azure serves as the “online data center” for businesses, and the surge in demand for AI models and data storage has made it a significant source of cash flow for Microsoft.
2. Popularity of AI Tools: The paid users of Microsoft 365 Copilot (an AI assistant within Office that helps with document writing and spreadsheet creation) have exceeded 30 million, indicating a growing willingness among companies to invest in AI tools that enhance efficiency.
Additionally, there were unexpected gains: Microsoft made a profit of $3.2 billion from its investment in AI company Anthropic, and the cost associated with employees’ voluntary retirement plans was lower than anticipated. Although the severance costs for Xbox offset some of this, overall profits still exceeded expectations.
II. Segmented Business Performance
Microsoft’s three main business segments showed varying trends:
- Intelligent Cloud Division (Azure + Enterprise Services): Revenue increased by 32% to $39.3 billion, reflecting the strong demand for cloud services driven by AI applications.
- Productivity Division (Office, Teams, etc.): Revenue grew by 14% to $37.8 billion, indicating a steady growth, as Copilot’s paid users mainly come from this segment, suggesting increasing acceptance of AI in office productivity tools.
- Personal Computing Division (Xbox, Surface, etc.): Revenue decreased by 4% to $12.9 billion, with revenue from Xbox content and services falling by 10%. Microsoft stated that it is repositioning its Xbox business (e.g., by adjusting its gaming strategy) and expects a turnaround in fiscal year 2027.
III. Capital Expenditures: Reducing Spending by $15 Billion, Focusing on AI Hardware
Microsoft had initially planned to spend $190 billion on infrastructure investments for 2026 but now reduced this amount to $175 billion. The change in leasing arrangements for data centers (from long-term leases to more flexible operational leases) helped save costs. Two-thirds of the funds were allocated to short-term assets, such as CPUs and GPUs (essential for AI model training), with the remaining portion used for purchasing long-term equipment like data center facilities. This indicates that Microsoft is prioritizing investments in AI infrastructure to prepare for future competition.
IV. Stock Price Volatility: Investors’ Concerns and Reassurance
- Previous Decline: From June to July, Microsoft’s stock price dropped from $460 to $390 due to concerns about the high cost of AI initiatives (such as purchasing GPUs and building data centers) and potential disruption from AI technologies.
- Current Rise: After the financial report was released, the market saw the strong performance of Azure and Copilot, which alleviated some of these concerns, suggesting that AI investments are worthwhile.
V. AI Partnerships: Diversifying in Europe, Not Relying on a Few Major Models
On July 21, Microsoft partnered with French AI startup Mistral to invest billions in building AI infrastructure and jointly developing the European market. This move aligns with Satya Nadella’s vision for AI: to avoid reliance on a few dominant models (like OpenAI’s GPT) and provide customers with more options. It also supports Europe’s digital transformation efforts, as EU regulations on AI are stricter, making local partnerships more compliant. For Microsoft, this partnership allows it to expand in Europe while diversifying its AI risks.
Conclusion
Microsoft’s financial results demonstrate that AI is not just a promising concept but a real driver of revenue growth. Cloud services and AI tools are the current core drivers of success, although the personal computing division still needs time to adapt. Investors’ concerns have been temporarily alleviated, but the sustainability of future AI investments and industry competition will remain key factors. The partnership with Mistral highlights Microsoft’s commitment to diversifying its AI strategies to reduce reliance on any single technology.