Microsoft shares surged 16% after the company gave a stronger-than-expected outlook for sales and cloud growth, easing investor concerns that its heavy spending on artificial intelligence data centres may take too long to pay off.
The Redmond-based company said it expects to keep generating cash through fiscal 2027 and gave a capital expenditure forecast below Wall Street estimates after changing how it accounts for long-term data centre leases.
The update was closely watched because Microsoft has been one of the biggest spenders in the global AI race. Investors have been asking whether the company can turn that spending into real growth without hurting cash flow. Its latest numbers gave them a stronger answer.
Microsoft said revenue at Azure, its cloud-computing business, rose 43% in the fiscal fourth quarter. Analysts were expecting growth of 39.98%, according to Visible Alpha.
"This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation," CEO Satya Nadella said.
Azure stays in the AI race
The Azure performance was the main driver of the stock reaction. Microsoft has been under pressure to show that its AI investments are helping cloud growth. The company has spent heavily on data centres, chips and computing capacity to meet demand from customers using AI tools.
The 43% growth in Azure showed that demand remains strong. It also helped calm fears that Google Cloud’s recent strong quarter meant Microsoft was losing ground.
Google Cloud had reported an 82% jump in cloud revenue last week, raising questions about whether it was taking share from rivals.
"It seemed kind of like Google was taking market share from everybody and they could catch up to the market share of Azure if they keep on that trajectory," said Dave Wagner, portfolio manager at Aptus Capital Advisors. “But what Azure is showing us is that it's staying right there in the race."
Microsoft also reported contracted backlog of $678 billion in its cloud business at the end of the quarter, up from $627 billion in the previous quarter. The company said the entire sequential increase, about $50 billion in future sales, came from commitments by companies outside the leading US AI model makers.
Copilot demand beats estimates
Microsoft's AI push is also showing up in its productivity business. The company said Microsoft 365 Copilot had more than 30 million paid seats, up from 20 million last quarter. Analysts expected about 26.9 million paid seats, according to Reuters calculations based on estimates from Citi, Morgan Stanley, BNP Paribas and Wells Fargo.
Microsoft’s Office and productivity software business has long been one of its most reliable sources of profit. There had been concern that AI tools could disrupt this business or take time to generate meaningful revenue.
The Copilot numbers suggest customers are paying for AI features inside Microsoft’s existing software products.
