Microsoft Profits Jump 31% as Azure Cloud Sales Surpass $100 Billion -- 5th Update

By Anissa Gardizy

Microsoft reported robust cloud growth and a boost in the number of paid AI subscribers, as investors remain fixated on whether the tech giant's data-center spending will pay off.

Microsoft's revenue grew 18% to $90 billion in the quarter ended in June, a sign that the company's AI revenue growth is accelerating and it will continue to spend on data centers.

Net income increased 31% to $35.8 billion. The result beat Wall Street's expectations, according to an average of dozens of analysts polled by FactSet.

Chief Executive Satya Nadella said revenue from its Azure cloud business surpassed $100 billion for the first time in fiscal year 2026, which ended in June. The disclosure was notable because Microsoft historically doesn't break out revenue for that business, making it difficult to compare it with rivals Amazon Web Services and Google Cloud. Azure's growth rate in the quarter was 43%, higher than last quarter's 40% growth rate.

Growth in the company's Intelligent Cloud segment, which includes its Azure cloud business and other products, generated revenue of $39.3 billion for the quarter. Azure growth remains one of the numbers that investors watch most closely as a read on general AI demand.

Microsoft said Copilot, which includes AI features embedded in its Office suite of applications, now has 30 million paid users, up from 20 million last quarter. Microsoft has struggled to convert its massive user base into paying AI customers, and Stifel analyst Brad Reback had expected Microsoft to report 26 million users.

"Clearly, the investments they're making both on the infrastructure side of AI and on the first-party app side are paying off for them," Reback told The Wall Street Journal.

Investors have been closely monitoring Copilot growth as a proxy for whether Microsoft can parlay its capital expenditure into revenue-generating products for business customers. Google, Anthropic, OpenAI and other rivals are competing hard for the same enterprise AI budgets Microsoft is chasing.

"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, " Chief Executive Satya Nadella said of Microsoft's fiscal-year results.

Growth in the company's Intelligent Cloud segment, which includes its Azure cloud business and other products, generated revenue of $39.3 billion for the quarter. The growth rate for Azure specifically was 43%, higher than last quarter's 40% growth rate.

Azure growth remains one of the numbers investors watch most closely as a read on general AI demand.

The company also said it recorded a $3.2 billion gain from its Anthropic investment, and that it had lower-than-expected expenses related to its voluntary retirement program.

Microsoft's capital expenditures reached $41 billion for the quarter, in line with the firm's guidance last quarter. In April, the company said it expected to spend about $190 billion on capex in calendar 2026 -- up 61% from 2025 -- a figure inflated by roughly $25 billion in higher memory and component costs amid an industrywide crunch.

Investors will likely get more color on any capex changes from Microsoft Chief Financial Officer Amy Hood during a call at 5:30 p.m. ET.

The scale of that spending, funneled into data centers and chip purchases, has unsettled some investors who worry the AI payoff hasn't yet materialized. Critically, Microsoft stayed cash-flow positive, unlike other hyperscalers, including Google-parent Alphabet, which recently reported negative cash flows.

Shares of Microsoft, which are down about 18% so far this year, rose 4% in after-hours trading.

That level of spending is underpinned by $678 billion in remaining performance obligations, a measure of contracted revenue Microsoft hasn't yet booked. Much of that backlog ties back to OpenAI. Microsoft owns roughly 27% of the ChatGPT maker's for-profit arm.

Meanwhile, earlier this month Microsoft said it would cut 3,200 jobs from its Xbox videogames division as it restructures the struggling business.

Write to Anissa Gardizy at anissa.gardizy@wsj.com

(END) Dow Jones Newswires

July 29, 2026 17:26 ET (21:26 GMT)