Microsoft comfortably beat Wall Street estimates on Wednesday, reporting strong Azure cloud growth and better-than-expected profit for the fourth quarter of its 2026 fiscal year.

Microsoft's revenue for the quarter, which ended on June 30, came at $90 billion, beating analysts' estimates by more than $2 billion. Quarterly revenue grew by 18% year-over-year.

The company also reported quarterly profits of $35.8 billion, a 31% increase from last year, which was boosted by about $3.2 billion due to the company's investment in the artificial intelligence startup Anthropic.

Analysts were skeptical of Microsoft, and other Big Tech companies, going into earnings season as they wait for signs that the tech industry's unprecedented spending on AI development would eventually pay off. Microsoft signaled its AI products were driving fresh revenue, as its Azure cloud division reported better growth than expected.

The division's revenue grew by 43% year-over-year, the fastest rate since 2022.

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, Microsoft CEO Satya Nadella said in a news release on Wednesday.

Those 30 million paid users of Copilot, Microsoft's AI assistant, are double what Microsoft had six months ago.

Both Azure and Copilot are closely watched by investors as they look for returns on AI investments, which are also known as capital expenditures.

In a call with investors after reporting the better-than-expected quarterly growth in Azure Microsoft Chief Financial Officer Amy Hood provided a bullish outlook for the current quarter, which ends on September 30. Hood said the company expects Azure's revenue to grow by 45%, though gave the caveat that growth rates can fluctuate based on computer chip capacity and the company's contract backlog.

But even as revenue grows, so will capital expenditures, as the tech industry shows no sign of slowing down its spending on data centers and high-tech computer chips. Hood said capital expenditures reached a record $41 billion during the fourth quarter and will be over $50 billion from July through September.

Microsoft is shifting some of its future data center leases from finance leases to operating leases, a designation that shifts the costs to operating costs, which will drop Microsoft's expected capital expenditures for the calendar year from roughly $190 billion to $175 billion. However, the company's overall expected spending will remain unchanged.

The tech industry's spending is eating into the free cash flow of most companies, and Microsoft is no exception. While it hasn't had to resort to leveraging large amounts of debt to fuel its AI buildout, the company's free cash flow was $19.6 billion in the fourth quarter, down 23% from a year prior.

Outside of Microsoft's furious cloud growth, the company's hardware divisions were hammered during the fourth quarter. Both Windows devices and Xbox suffered year-over-year declines, with Xbox hardware revenue falling by 13%.

Xbox's drop was partially chalked up to severance costs from widespread layoffs this month and stronger performance last year. The gaming and PC industries have also been affected by a components crisis, as rampant AI spending drives up the cost of memory and storage hardware.

After raising Xbox prices last year, Microsoft will again enact a price hike on Aug. 1.

Microsoft's share price rose by as much as 8% in extended trading.

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