Microsoft shares climbed as much as 8% in after-hours trading after the company reported fiscal 2026 fourth-quarter revenue of $90.0 billion, up 18% from a year earlier, and disclosed that Azure’s growth accelerated to 43%. The rally gathered pace after management outlined a roughly $175 billion calendar-year 2026 capital-expenditure figure, lower than the $190 billion comparable estimate discussed three months earlier.
The change did not signal a retreat from Microsoft’s data-center buildout. Microsoft said its fiscal 2027 capital expenditures would rise year over year, with first-quarter spending expected to exceed $50 billion. Instead, the lower calendar-year figure reflects an accounting change that will extend the depreciable life of data centers and office buildings to 25 years from 15 years, while shifting more data-center leases from finance-lease accounting to operating-lease treatment.
Shares had closed at $390.54 before the release on July 29, initially rising less than 3% after the results and then moving above $422 during the earnings call. The market response suggested traders focused on the prospect of slower reported capital-expenditure growth without evidence that Microsoft was reducing its demand for AI computing capacity.
Azure growth accelerates as cloud revenue passes $100 billion
Azure and other cloud services grew 43% in the fiscal fourth quarter, compared with 40% in the previous quarter, Microsoft said. The company also said Azure’s full-year revenue exceeded $100 billion, rising 41% from fiscal 2025.
That acceleration arrived alongside a substantial expansion in Microsoft’s contracted future revenue. Commercial remaining performance obligations, a measure of contracted revenue yet to be recognized, reached $678.0 billion at the end of June, up 84% year over year.
Microsoft said the figure would imply 25% growth after excluding the effect of OpenAI. Commercial bookings rose 10% on a reported basis and 18% excluding OpenAI.
The OpenAI relationship had a particularly large effect on the backlog during the year. Microsoft said remaining performance obligations increased by $233.0 billion quarter over quarter in fiscal 2026’s second quarter, primarily because of an OpenAI contract. The annual report and earnings call put the weighted average recognition period of the overall backlog at about 2.3 years.
About 30% of the backlog is expected to be recognized over the next 12 months, while 70% is due beyond one year. That longer-dated portion rose 112% year over year, placing more of Microsoft’s expected revenue further into the future and giving the company a clearer basis for continuing its infrastructure spending.
Spending remains on a sharply higher trajectory
Microsoft’s own broader capital-expenditure measure, which includes finance leases, totaled $41.0 billion in the fiscal fourth quarter, up 70% from a year earlier. That compares with $19.0 billion in the same quarter two years earlier.
For the full fiscal year, capital expenditures reached $145.3 billion, or 2.6 times the fiscal 2024 total, according to Microsoft’s filing. The pace puts the company among the largest buyers of data-center infrastructure globally, including land, buildings, networking equipment, servers and AI accelerators.
A narrower cash-flow measure produces a lower figure. Purchases of property and equipment, as recorded on the cash-flow statement, were $35.8 billion for the quarter. The difference from the broader $41.0 billion measure was largely tied to $5.6 billion in finance leases.
The distinction matters because the accounting treatment changes the timing and classification of spending without necessarily changing the physical scale of the infrastructure project. A finance lease effectively places a leased asset and related obligation on the balance sheet in a way that resembles financed ownership. Operating leases are treated differently, even though both structures can support data-center capacity.
Microsoft also reported $329.1 billion of lease commitments that had not yet commenced at the end of June. Those obligations are scheduled to begin between fiscal 2027 and fiscal 2033 and are largely associated with data centers. The number points to years of planned site expansion beyond the servers already being deployed.
Depreciation change eases pressure on reported costs
Management said it plans to lengthen the useful life of data centers and office buildings from 15 years to 25 years beginning in fiscal 2027. Spreading an asset’s cost over a longer period lowers annual depreciation expense relative to a shorter schedule, supporting reported operating income and free cash flow calculations even when construction and equipment purchases remain substantial.
Microsoft’s annual report continued to describe building depreciation periods of five to 15 years in its accounting-policy section. The company described the planned 25-year change in prepared remarks for the earnings call, placing the new approach in the next fiscal year rather than the period covered by the annual filing.
The adjustment comes after depreciation costs had already risen sharply. Microsoft reported fiscal 2026 depreciation expense of $34.3 billion, compared with $15.2 billion two years earlier, based on its property-and-equipment disclosures. Microsoft Cloud gross margin fell to 65% from 68% a year earlier, its fourth consecutive quarterly decline, showing how the cost of adding AI capacity is weighing on the profitability of cloud services.
Operating cash flow remained strong at $55.4 billion for the quarter, up 30% year over year and a record for Microsoft. Free cash flow fell 23% to $19.6 billion as infrastructure outlays absorbed a larger share of the company’s cash generation.
For the full fiscal year, free cash flow was $67.0 billion, down from $71.6 billion in fiscal 2025. Microsoft said fiscal 2026 marked its first year-over-year decline in annual free cash flow since its current AI spending cycle began, though it expects free cash flow to remain positive in fiscal 2027.
OpenAI shapes both revenue and earnings
Microsoft’s financial relationship with OpenAI featured prominently across its earnings figures. Revenue from commercial agreements with OpenAI reached $24.1 billion in fiscal 2026, while accounts receivable from OpenAI stood at $6.0 billion at year-end. Microsoft said it held roughly a 25% equity interest in OpenAI on a converted basis.
The company reported GAAP earnings per share of $4.81 and non-GAAP earnings per share of $4.74. The non-GAAP measure excluded equity-method effects from OpenAI. Microsoft recorded $4.963 billion of equity-method net income from OpenAI in fiscal 2026, following a $3.62 billion net loss in the prior year.
Its annual report attributed most of the gain to dilution gains associated with an OpenAI restructuring in October 2025. Those gains lift reported earnings but differ from recurring revenue generated by software and cloud services, making the underlying Azure growth and contracted backlog more central to Microsoft’s infrastructure plans.
Compute demand adds pressure to power and hardware markets
Microsoft’s spending plans reinforce a constraint increasingly relevant to companies building digital infrastructure: access to power, data-center sites and advanced computing hardware. Large cloud operators can commit capital years ahead of construction and secure long-term leases, leaving smaller operators with fewer options in regions where grid capacity is limited.
That dynamic can affect cryptocurrency infrastructure without creating a direct link to token prices. Bitcoin miners, decentralized computing networks and other operators that depend on energy-intensive hardware compete for some of the same inputs: electricity contracts, data-center capacity, networking equipment and specialized chips.
Operators that secure digital ledgers with energy-hungry machines may place greater value on fixed or long-term power arrangements as hyperscale data-center demand expands. Decentralized networks offering computing capacity could also gain commercial interest where cloud capacity is scarce, though their usefulness will depend on reliability, location, hardware compatibility and pricing rather than scarcity alone.
Microsoft’s results show that the AI infrastructure cycle remains capital-intensive even as cloud revenue accelerates. Its revised expenditure outlook changes the accounting profile of that spending, while lease commitments, quarterly outlays and fiscal 2027 guidance indicate that the construction of large-scale computing capacity is continuing at a formidable pace.
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