Fourth-quarter revenue rose 17% when ignoring currency moves, to $90.0bn ($87.6bn expected). Growth was broad-based, including 43% in Azure.
Operating profit was $40.6bn ($40.2bn expected), up 18%, driven by strong revenue growth.
Free cash flow fell 23% to $19.6bn, as cash capex more than doubled to $35.8bn. Net cash was $36.5bn at the end of the quarter, not including $88.5bn of lease liabilities. The company returned $10.2bn in cash to shareholders.
Revenue in the coming quarter is guided to rise 16-17% to $89.9-91.0bn ($89.7bn expected), with Azure expected to grow around 45%.
For the full year, the group expects double-digit revenue and operating income growth. Capex is set to grow, but margins are expected to be broadly flat, with positive free cash flow.
The shares rose 7.9% in after-hours trading.
Our view
Microsoft had been caught between two headwinds with nowhere to hide: fears that AI investment would weigh on cloud returns and that AI could disrupt its highly profitable software business. This quarter answered both concerns. Azure accelerated as capacity came online, Copilot adoption stepped up sharply, and margins held firm, without another major increase in the capex budget.
Azure remains the key engine of the investment case. Demand across AI and traditional workloads continues to exceed supply, but better fleet efficiency and faster deployment are turning more of it into revenue. Guidance for around 45% growth in the coming quarter suggests that the benefits from past investment are now starting to come through.
The trade-off is investment. Microsoft is spending heavily on infrastructure, which will remain a drag on free cash flow. But the latest update offered reassurance: underlying investment expectations were unchanged despite stronger cloud growth, margins held up well, and the business is expected to remain free-cash-flow positive for at least the next year.
Microsoft has also taken a different route from some of its peers by leaning on OpenAI, while building its own models and hosting thousands of third-party options. If different models suit different tasks, Microsoft’s advantage may be less about owning the single best one and more about giving customers choice, then connecting those models to Azure, data and software.
That flexibility gives Microsoft several ways to win without funding every layer of the AI race itself. The OpenAI relationship still brings concentration and counterparty risk, but the wider model ecosystem leaves Microsoft less dependent on any single provider than the headline partnership suggests.
The software side remains essential, and this quarter offered the clearest evidence yet that AI can be an opportunity rather than simply a disruption risk. After a poor start, Copilot is now a powerful tool when synced with the Office suite, with more than 30 million paid seats, and net additions more than doubling from the prior quarter. Improving engagement, premium packages and usage-based pricing are creating a more credible growth engine on the software side.
All in, Microsoft remains a best-in-class operator and one of our preferred names in tech and AI. Accelerating cloud growth, improving Copilot adoption, and resilient margins strengthen the investment case. Following a very positive reaction to results, the earnings multiple is now back up to its one-year average. We still see scope for the multiple to move higher but are conscious that it will take more than one strong quarter to fully dispel fears about the AI build-out and software disruption.
Environmental, social and governance risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Microsoft’s overall management of material ESG issues is strong.
Microsoft’s deep pockets mean that it’s able to spend $20bn in the coming few years to help combat the threat of cybersecurity attacks. At the same time, the group already has relatively robust analytics and oversight structures in place to help reduce this risk. That said, Microsoft’s handling of data has come under scrutiny in the past, and its huge scale means that this risk remains material.
The author holds shares in Microsoft.
Microsoft key facts
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