Microsoft reports strong cloud growth driven by AI demand.
Microsoft has forecast stronger-than-expected revenue and cloud growth for its fiscal first quarter, boosting investor confidence that its multi-billion-dollar investment in artificial intelligence is delivering results.
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The technology giant also said it expects to continue generating strong cash flow through fiscal 2027. In addition, it lowered its reported capital expenditure forecast after extending the accounting life of data centre leases from 15 years to 25 years.
Following the announcement, Microsoft’s shares climbed more than 8% in after-hours trading.
Azure outperforms expectations
Microsoft’s Azure cloud business posted 43% revenue growth in the fourth quarter ended June 30, outperforming analysts’ expectations of nearly 40%.
Moreover, the company projected 45% Azure growth for the current quarter on a constant currency basis, comfortably ahead of market forecasts.
Chief Executive Satya Nadella said Microsoft is expanding its AI strategy by developing its own AI models and chips alongside external technologies. He added that the approach has improved efficiency by as much as 40% while giving customers greater flexibility to choose AI solutions based on cost and performance.
Revenue outlook beats forecasts
Microsoft expects first-quarter revenue of about $90.4 billion, exceeding analysts’ estimates of $89.66 billion.
Meanwhile, the company maintained that its overall AI investment plans remain unchanged despite revising how it accounts for long-term data centre leases.
Microsoft now expects to report $50 billion in capital expenditure during the first quarter of fiscal 2027 and $175 billion for the 2026 calendar year. Both figures remain below previous Wall Street estimates because of the accounting adjustment rather than reduced investment.
AI demand continues to grow
The company reported $678 billion in contracted cloud backlog, up from $627 billion in the previous quarter. Microsoft said businesses outside the leading US AI model developers drove the entire increase in future sales commitments.
Demand for Microsoft 365 Copilot also accelerated. Paid subscriptions surpassed 30 million seats, exceeding analysts’ expectations of 26.9 million.
For the fourth quarter, Microsoft reported $90 billion in revenue, an 18% increase from a year earlier. Adjusted earnings reached $4.74 per share, beating market expectations of $4.24.
The results suggest Microsoft’s AI strategy is strengthening its position in the highly competitive cloud market, where it continues to compete with Amazon Web Services and Google Cloud.
