Microsoft delivered another quarter of double-digit revenue growth and stronger-than-expected earnings, powered by Azure’s 40% surge — but shares fell as the company warned that capital expenditures will rise even faster next year.
Finblog’s earlier forecast predicted a clean beat with cautious guidance, and that’s precisely how this earnings season ended, with strong fundamentals overshadowed by swelling AI costs.
Referred article: Microsoft Q4 2025 Earnings Preview and Prediction: What to Expect
From Forecasts to Reality
| Metric | Street / Finblog Forecast | Actual (Fiscal Q1 2026*) | Outcome |
|---|---|---|---|
| Revenue | $70 – $75.4 B (+13–14%) | $77.67 B (+18%) | ✅ Beat |
| EPS (GAAP) | $2.96 – $3.66 | $3.72 (Adj $4.13) | ✅ Beat |
| Operating Income | — | $38 B (+24%) | ✅ Strong expansion |
| Intelligent Cloud (Azure) | $30.2 B (+28%) est. | $30.9 B (+28%) | ✅ In line / Beat |
| Azure Growth (CC) | +27% expected | +40% (CC) | ✅ Major upside |
| Productivity & Business Processes | $32.3 B | $33.0 B | ✅ Beat |
| More Personal Computing | $12.8 B | $13.8 B (+4%) | ✅ Beat |
| Capex | $30 B est. | $34.9 B (+74% YoY) | ⚠️ Much higher |
| FY 2026 Capex Guide | Flat – +5% | “Above FY 2025 growth rate” | ⚠️ Hawkish |
*Fiscal Q1 2026 = Calendar Q3 2025.
Microsoft posted record quarterly revenue of $77.7 billion, beating consensus by more than $2 billion.
Net income rose 12% to $27.7 billion, while adjusted EPS surged 13%. Yet despite a textbook beat, shares fell 4% after hours as CFO Amy Hood signaled that capex growth will accelerate in fiscal 2026, not slow as previously expected.
Azure: AI Demand Lifts the Cloud
Finblog’s preview highlighted Azure as the “heart of AI spend” — and that proved exactly right.
Azure revenue jumped 40% YoY in constant currency, outperforming StreetAccount’s 38% forecast and confirming Microsoft’s grip on enterprise AI workloads.
The Intelligent Cloud segment delivered $30.9 billion in revenue, its best-ever quarter.
CEO Satya Nadella credited adoption of Copilot, OpenAI APIs, and custom GPT training clusters, adding:
“AI is now infused into every part of our tech stack — from Azure infrastructure to Copilot in Office 365 and GitHub.”
Still, analysts noted that AI infrastructure demand remains capital-intensive, putting near-term pressure on free cash flow.
Office 365 and Copilot: Productivity Re-Energized
Microsoft’s Productivity and Business Processes segment posted $33 billion in revenue, above expectations.
Growth was driven by Microsoft 365 Commercial subscriptions and strong Copilot Enterprise adoption across large customers.
Copilot’s early monetization trajectory remains modest in dollar terms but sticky in enterprise renewal cycles, reinforcing Finblog’s prediction that Copilot will drive steady, recurring ARPU expansion through FY 2026.
LinkedIn also contributed solid gains, while Office consumer demand stayed resilient amid AI-enhanced features rolling out to Word, Excel, and Teams.
More Personal Computing: Stability Returns
The Windows and devices business, once a drag, showed signs of stabilization.
Revenue climbed 4% YoY to $13.8 billion, beating forecasts as PC demand and advertising rebounded.
The Xbox and Activision Blizzard integration added incremental strength, with gaming content and services up ~16% YoY.
This supports Finblog’s earlier expectation that Microsoft’s consumer ecosystem would enter a “stabilization phase” as hardware declines moderate and services offset cyclicality
The Spending Shock: Capex Takes Center Stage
Despite record results, the earnings call shifted focus to AI costs.
CFO Amy Hood disclosed that capital expenditures totaled $34.9 billion, up 74% year-over-year — well above guidance.
She added that capex growth in FY 2026 will exceed FY 2025’s rate, reversing previous expectations of a slowdown.
“We’re accelerating infrastructure investment to meet AI demand,” Hood told investors, pointing to sustained GPU shortages and data-center buildouts.
The comment triggered the sell-off. Traders had priced in flattening spend; instead, Microsoft signaled another heavy AI build cycle ahead.
OpenAI Impact: A Costly Partnership
Microsoft confirmed a $3.1 billion hit to net income, equal to $0.41 per share, tied to its OpenAI stake and ongoing R&D integration.
While the partnership continues to anchor Azure AI’s dominance, it temporarily compressed bottom-line results — echoing Finblog’s preview that “AI monetization lags AI capex.”
OpenAI’s restructuring was also finalized this week: Microsoft now owns 27% of OpenAI’s for-profit arm, valued around $135 billion.
Market Reaction and Analyst Sentiment
Microsoft shares dropped 3–4% in after-hours trading, closing near $530 on Thursday — despite beating on every key metric.
- Barclays: “Fundamentals solid but capex guidance too hawkish for current valuations.”
- Wolfe Research: “The AI flywheel is spinning — but so is the spending.”
- JPMorgan: “Capex reset likely temporary as supply chains normalize in late 2026.”
Options volume hit record levels, with calls outpacing puts 2:1 as traders positioned for a short-term rebound.
Finblog Forecast Accuracy
| Focus Area | Result |
|---|---|
| Revenue beat | ✅ Accurate |
| EPS outperformance | ✅ Accurate |
| Azure growth | ✅ Surpassed expectations |
| Copilot adoption | ✅ On track |
| Windows stabilization | ✅ Confirmed |
| Capex trajectory | ⚠️ Higher than forecast |
| Stock reaction | ✅ Direction correct |
| Overall Forecast Accuracy | A- (~87%) |
Key Takeaways
- Revenue $77.7 B (+18%) | EPS $3.72 (Adj $4.13) — beats across the board.
- Azure +40% growth solidifies Microsoft as the AI infrastructure leader.
- Capex $34.9 B (+74% YoY) marks another spending surge.
- FY 2026 capex growth will accelerate, not slow.
- OpenAI partnership cost $3.1 B this quarter but remains strategic.
- Stock fell 4% on spending concerns, despite record results.
Microsoft’s quarter reinforced its status as the core AI enabler of the enterprise economy — but it also exposed the price of leadership.
Cloud and productivity growth remain robust, Copilot is gaining traction, and Azure continues to outperform. Yet investors must reckon with an AI arms race that demands ever-rising capital outlays.
For Microsoft, the AI flywheel is working — but so are the spending engines.
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
