Microsoft crossed a major milestone as Azure surpassed $100 billion in annual revenue for fiscal 2026, driven by a 43% fourth-quarter growth rate in cloud services. Despite heavy artificial intelligence spending that pushed capital expenditures to $116 billion, the stock trades below its five-year average price-to-earnings multiple.
Azure Hits $100 Billion in Annual Revenue
Microsoft’s cloud business crossed a threshold in fiscal 2026, as Azure passed $100 billion in annual revenue. During the fiscal fourth quarter alone, Azure and accompanying cloud services expanded by 43% on an unchanged constant currency basis. That performance anchored a revenue gain that brought total fiscal 2026 revenue to $331.8 billion, representing an 18% increase over the prior year.
The company’s Intelligent Cloud division contributed $39.3 billion during the fourth quarter, marking a 32% rise led by Azure’s numbers. Total Microsoft Cloud revenue reached $59.3 billion, up 27%. Backing this expansion is contracted demand visible in commercial remaining performance obligations, which climbed 84% to hit $678 billion with a weighted average duration of 2.3 years. Microsoft’s revenue growth also compares unfavorably with its peers, at least so far this fiscal year.
Satya Nadella Leads Record Growth Amid Heavy AI Spending
Since Satya Nadella took over as CEO in February 2014, Microsoft’s stock price has climbed by about 1,360%. Factoring in reinvested dividends during that span brings the total return to roughly 1,670%. Yet that trajectory now encounters questions regarding the sheer scale of capital investments required to maintain competitiveness in artificial intelligence and cloud infrastructure.
Fiscal year 2026 capital expenditures reached $116 billion, a steep climb from $65 billion in the prior fiscal year and $44 billion in fiscal 2024. This spending acceleration mirrors actions across the sector. Amazon, holder of the largest cloud infrastructure market share, is on pace to spend $220 billion in capital expenditures in 2026, while Alphabet plans approximately $200 billion for Google Cloud and related operations.
Operating Income Rises as Investments Impact Earnings
Profitability kept pace with top-line gains during the period. Operating income for the fourth quarter rose 18% to reach $40.6 billion, while full-year operating income advanced 21% to $155.2 billion. Non-GAAP diluted earnings per share, which strips out valuation swings from OpenAI investments, landed at $4.74 for the quarter and $17.28 for the full year.
Several one-time items influenced these financial figures. Microsoft stated that discrete items added $0.27 per share relative to internal guidance, led by a $3.2 billion gain on its Anthropic investment, which was partly offset by severance costs and Xbox impairment charges. Excluding those items, management reported beating expectations across revenue, operating income, and earnings per share.
| Company | P/E Ratio (TTM) | P/E Ratio (Forward) |
|---|---|---|
| Microsoft | 30 | 27 |
| Amazon | 21 | 31 |
| Alphabet | 18 | 29 |
Valuation metrics place Microsoft at a forward price-to-earnings multiple of 26.59 as of October 6, or roughly 27 according to tracking data. That multiple sits above the sector average forward P/E of 23.81, meaning the stock carries a premium compared to its peers. However, it trades below its own five-year historical average P/E of 30.52. Meanwhile, Amazon and Alphabet trade at forward multiples of 31 and 29 respectively, though their trailing earnings figures were adjusted by one-time investment gains. Microsoft (MSFT) Posted 43% Azure Growth, Yet Trades Below Its Own Five-Year P/E.
Software Segments Grow as Copilot Reaches 30 Million Seats
While cloud infrastructure anchors the growth narrative, the Productivity and Business Processes segment—encompassing Microsoft 365, LinkedIn, and Dynamics 365—delivered $37.8 billion in fourth-quarter revenue, marking a 14% increase. Microsoft 365 commercial cloud revenue also grew 14%, LinkedIn expanded by 12%, and Dynamics 365 grew 13%.
This established software installed base provides a distribution channel for artificial intelligence add-ons. Microsoft reported that Microsoft 365 Copilot reached more than 30 million paid seats over the fiscal year, relying on Azure infrastructure to power the underlying computing tasks. Not all divisions participated in the expansion, as More Personal Computing revenue dropped 4% to $12.9 billion, pulled down by a 7% decline in Windows OEM and Devices alongside a 10% drop in Xbox content and services.