Microsoft Profits Jump 31% as Azure Cloud Sales Surpass $100 Billion -- 8th 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 that 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.

Shares of Microsoft, which had been down about 18% so far this year, rose 8% in after-hours trading.

Last week, competitor Google Cloud reported nearly $25 billion in revenue for the quarter, implying that it could be on pace to generate $100 billion in revenue in the next year. Rival Amazon is expected to report its most recent quarterly earnings on Thursday; in the quarter ended in March it generated $37.6 billion in cloud revenue.

Azure's growth rate in the quarter was 43%, higher than the previous quarter's 40% growth rate.

"Customer demand continues to exceed available capacity," Chief Financial Officer Amy Hood told investors, adding the company expects 45% growth in the current quarter.

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.

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.

Nadella devoted some of his remarks to Microsoft's goal of helping enterprise customers harness AI without outsourcing their intellectual property to model providers. He also said companies shouldn't depend on a single AI model, making a pointed reference to the recent incident where an OpenAI system broke out of its own testing environment and hacked into another company, Hugging Face.

"The biggest thing that we should take away from that is you can't sort of depend on any one model," Nadella said. He added that businesses may need to use multiple systems to address problems that other models create.

Microsoft's Azure AI products use multiple models, including OpenAI and Anthropic.

Microsoft 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.

Microsoft lowered its calendar 2026 capital-expenditure forecast to about $175 billion from roughly $190 billion, after extending the estimated useful life of its data centers and office buildings to 25 years from 15 years. The accounting change will cause more future data-center leases to be classified as operating leases, which are excluded from capex, and that the company's underlying investment plans remain unchanged, Hood said.

The company also plans to spend more than $50 billion in the current quarter, including the capex reclassification, Hood added.

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. Microsoft said it expects to remain free cash-flow positive in the current fiscal year.

Microsoft's fiscal year revenue was $331 billion, up 18%.

The level of its 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, but Hood said sequential growth came from firms outside of the frontier AI labs. 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 18:53 ET (22:53 GMT)