Latest quarter
Microsoft reported Q4 FY2026 revenue of $90.0 billion, up 17.7% from Q4 FY2025, and revenue as the consensus counts it was $90.0 billion versus a $87.4 billion consensus. The company reported adjusted EPS, as the consensus counts it, of $4.74, compared with the $4.21 consensus; diluted EPS under the company’s reported measure was $4.81, up 31.8% from a year earlier.
Microsoft’s filing said annual Intelligent Cloud revenue rose on Azure and other cloud services growth of 41%, while Productivity and Business Processes rose on Microsoft 365 Commercial cloud. The filing said More Personal Computing revenue declined as XBOX declined, partly offset by search advertising growth. Gross margin was 67.2%, down −1.4 percentage points from Q4 FY2025, while operating margin was 45.1%, up 0.2 percentage points. Operating cash flow was $55.4 billion and free cash flow was $19.6 billion. The supplied materials do not provide Microsoft’s Q4 FY2026 guidance against which to compare the quarter.
| Q4 FY2026 | Q4 FY2025 | Change | |
|---|---|---|---|
| Revenue | $90.0 billion | $76.4 billion | 17.7% |
| Diluted EPS | $4.81 | $3.65 | 31.8% |
| Gross margin | 67.2% | 68.6% | −1.4 percentage points |
| Operating margin | 45.1% | 44.9% | 0.2 percentage points |
| Free cash flow | $19.6 billion | $25.6 billion | −23.2% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $4.74 | $4.21 | Beat by 12.6% |
| Revenue | $90.0 billion | $87.4 billion | Beat by 2.93% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
What management said on the call
Amy Hood said Microsoft’s cloud demand continued to exceed available supply, and she said engineering efficiency gains in CPU and GPU capacity, together with faster deployment processes, made additional capacity available during the quarter. Hood said the company monetized those efficiency gains quickly because of the supply-demand imbalance.
Hood said commercial remaining performance obligation grew 84% to $678 billion, with all sequential growth coming from customers outside frontier model companies; excluding OpenAI, she said RPO increased 25%. She also said Microsoft Cloud revenue was $59.3 billion, up 27%, and that nearly 90% of its full-year cloud revenue came from customers outside frontier model companies.
Nadella said paid Microsoft 365 Copilot seats exceeded 30 million and that the company was moving its model from per-seat licensing toward seat-plus-consumption pricing. He said enterprise integration with governance, security and business-process systems was intended to increase usage of Copilot experiences. Hood said premium offerings including Copilot, E5 and E7 contributed to revenue per user, while usage-based billing expanded the company’s monetization opportunity.
On margins and investment, Hood said gross-margin percentage declined year over year because of Azure mix, AI infrastructure investment and product usage, partly offset by efficiency gains. She said Microsoft expects calendar 2026 capital expenditures of approximately $175 billion after a shift in expected lease treatment, and said FY2027 operating margin should be down less than one point. Hood said the company extended the estimated useful lives of data centers and office buildings from 15 to 25 years, a change she said affects the timing of future depreciation.
Analysts asked about capacity constraints, the flexibility of capital investment if demand changes, and pricing. Hood said the company can adjust purchases of shorter-lived CPUs and GPUs and alter the timing of data-center build-outs, but she did not quantify future capacity additions, pricing changes or the level of demand that could be served. Nadella said the company was focused on portfolio mix, capacity efficiency and customer value rather than providing those figures.
Guidance
Microsoft’s supplied materials do not identify guidance that changed from its prior outlook or guidance that the company stopped providing. Microsoft currently expects FY2027 revenue and operating income growth to be double-digit, operating expenses to grow in the mid- to high-single digits, capital expenditures to grow year over year, operating margin to decline by less than one point, and free cash flow to remain positive. For Q1 FY2027, Microsoft expects Intelligent Cloud revenue of $41.0 billion–$41.3 billion and Productivity and Business Processes revenue of $36.7 billion–$37.0 billion.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| Tax rate | FY2027 | 20.0% | — | New |
| Free cash flow | FY2027 | Microsoft expects to remain free-cash-flow positive in FY2027. | — | — |
| Operating margin | FY2027 | Microsoft expects full-year operating margins to be down less than one point in FY2027. | — | — |
| Capex | FY2027 | Microsoft expects capital expenditures to grow year over year in FY2027. | — | — |
| Operating expenses | FY2027 | Microsoft expects operating expenses to grow in the mid- to high-single digits in FY2027. | — | — |
| Revenue | FY2027 | Microsoft expects double-digit revenue growth in FY2027. | — | — |
| Revenue, Windows Oem and Devices | FY2027 | Microsoft expects Windows OEM and devices revenue to decline in the high teens for FY2027. | — | — |
| Revenue, M365 Commercial Products | FY2027 | Microsoft expects M365 commercial products revenue to decline in the mid-single digits for FY2027. | — | — |
| Revenue, Windows Oem and Devices | Q1 FY2027 | Microsoft expects Windows OEM and devices revenue to decline in the low 20s in Q1 FY2027. | — | — |
| Revenue, On Premises Server Business | Q1 FY2027 | Microsoft expects on-premises server revenue to decline in the low- to mid-single digits in Q1 FY2027. | — | — |
| Revenue, Intelligent Cloud | Q1 FY2027 | $41.0 billion–$41.3 billion | — | New |
| Revenue, Dynamics 365 | Q1 FY2027 | Microsoft expects Dynamics 365 revenue growth in the low teens in Q1 FY2027. | — | — |
| Revenue, Linkedin | Q1 FY2027 | Microsoft expects LinkedIn revenue growth in the high single digits in Q1 FY2027. | — | — |
| Revenue, M365 Consumer Cloud | Q1 FY2027 | Microsoft expects M365 consumer cloud revenue to grow in the mid-teens in Q1 FY2027. | — | — |
| Revenue, M365 Commercial Products | Q1 FY2027 | Microsoft expects M365 commercial products revenue to grow in the mid-single digits in Q1 FY2027. | — | — |
| Revenue, Productivity and Business Processes | Q1 FY2027 | $36.7 billion–$37.0 billion | — | New |
| Revenue, Xbox | FY2027 | Microsoft expects Xbox to return to growth in FY2027. | — | — |
How analysts reacted
Analysts’ price targets: $400.00 to $725.00, $600.00 on average (as of 18 October 2026).
| Firm | Date | Action | Rating | Target |
|---|---|---|---|---|
| Bernstein | 19 October 2026 | target raise | outperform → outperform | $660.00 → $662.00 |
| Morgan Stanley | 17 October 2026 | reiterate | outperform | $600.00 |
| Yorkville Ives | 17 October 2026 | initiate | outperform | $615.00 |
| Truist | 16 October 2026 | target raise | buy | $675.00 |
| TD Cowen | 15 October 2026 | target raise | buy | $540.00 → $625.00 |
| UBS | 15 October 2026 | target raise | — | $525.00 → $675.00 |
| Citi | 15 October 2026 | target raise | buy | $600.00 → $636.00 |
| Mizuho | 15 October 2026 | target raise | outperform | $510.00 → $600.00 |
| Stifel | 6 October 2026 | target raise | hold | $450.00 → $530.00 |
| Scotiabank | 5 October 2026 | target raise | outperform | $510.00 → $615.00 |