Microsoft’s fourth quarter financial report for fiscal year 2026 shows that Azure’s growth has rebounded and driven the business to cross key revenue milestones, but the continued rise in infrastructure spending has caught analysts’ attention.

Microsoft usually does not separately disclose Azure revenue, but the company stated that Azure and other cloud service revenue increased by 43% year-on-year, and Azure’s revenue exceeded $100 billion for the first time in the entire fiscal year 2026. Azure’s growth rate reached its highest level since the third quarter of 2022, with a growth rate of 46%.

The consolidated revenue was $90 billion, a year-on-year increase of 18%, and the net profit increased by 31% to $35.8 billion, including a $3.2 billion appreciation in the company’s investment in Anthropic. Intelligent cloud revenue (including server products and cloud services, as well as enterprise and partner services) increased by 32% to $39.3 billion, mainly driven by Azure revenue growth.

Continuous capacity supply-demand imbalance

The surge in Azure revenue is partly attributed to Microsoft’s astonishing speed in increasing computing capacity. CEO Satya Nadella said on the earnings conference call, “We added 31 data centers across five continents this quarter, totaling 88 new additions this year, to meet the accelerating demand for expanding our coverage. Overall, we added approximately 1 gigawatt of capacity this quarter and are expected to roughly double our total capacity within two years

CFO Amy Hood pointed out that the newly added capacity this quarter “quickly monetized”. But the company still cannot keep up with the demand. The backlog of orders has climbed to $678 billion, a year-on-year increase of 84% (or 25% if large-scale OpenAI transactions are excluded). About 30% of the backlog orders are expected to be converted into revenue within the next 12 months.

Microsoft is trying to accelerate the pace of adding capacity, with $132.5 billion in new leasing this quarter, mainly targeting data centers. The total amount of lease pipelines that have not yet started is 329.1 billion US dollars, and the lease terms will begin between fiscal years 2027 and 2033.

This quarter’s capital expenditure was $41 billion, with Microsoft paying $5.6 billion in financing lease fees, mainly for data center sites. Hood stated that Microsoft is seeking to shift more data center leasing from finance leasing to operating leasing, which means that some expenses will be removed from capital expenditure projects. In the first quarter of fiscal year 2027, Microsoft expects capital expenditures to exceed $50 billion.

Analysts closely monitor

Tekonyx founder and Chief Research Officer Sid Nag pointed out on LinkedIn that Microsoft’s performance deserves close attention. He specifically pointed out the relationship between capital expenditures (expected to be $175 billion in the 2026 calendar year) and Azure’s disclosed revenue. Nag pointed out that “the expected capital expenditure in 2026 is about 1.75 times Azure’s current annual revenue,” highlighting the “unprecedented capital intensity behind Microsoft’s AI strategy”.

Nag wrote: “Azure demand is clearly accelerating, but Microsoft is deploying capital even faster than it proves the attractiveness of AI returns. The company has demonstrated its scale, but has not yet demonstrated the profitability, capital efficiency, or return on investment of its AI infrastructure. ”

When answering analysts’ questions about whether the industry may build too many data centers and capacity, Hood pointed out that short-term assets such as CPUs and GPUs are key cost drivers. She said, “If the demand environment changes, you just need to slow down the biggest components and drivers of sales costs. Investment in land and data center construction is actually quite flexible, accounting for a relatively small proportion of the overall cost structure, and most of its timing can be adjusted.”