Key Points
- Microsoft anticipates fourth-quarter revenue between $86.7 billion and $87.8 billion, driven by demand in cloud and AI.
- Azure is expected to see solid growth, though capacity limitations may persist until 2026.
- In the fourth quarter, Microsoft’s AI infrastructure spending could exceed $40 billion, impacting operating margins.
Microsoft is set to release its financial results for the fourth quarter of fiscal year 2026 on July 29th.
The company projects that total revenue for this quarter will be between $86.7 billion and $87.8 billion, indicating growth of about 13% to 15%, with some of that growth offset by the consumer business lagging behind commercial growth.
The Zacks Consensus Estimate for revenue stands at $87.42 billion, reflecting a 14.36% increase from the same quarter last year.
Capital expenditures are expected to rise above $40 billion in this quarter, partly due to heightened component prices and the effect of finance leases. The structure of short-term assets is likely to mirror that of the previous quarter.
The consensus estimate for earnings has dropped slightly by 0.2% in the past 30 days to $4.21 per share, which suggests a year-over-year growth of around 15.34%.
MSFT’s Strong Earnings History
In the last quarter, Microsoft surprised analysts with a 4.91% return beyond expectations. The company has consistently surpassed the Zacks Consensus Estimate in the last four quarters, averaging an 8.43% surprise.
Anticipated Earnings for MSFT
Our model isn’t a definitive guide for predicting Microsoft’s earnings this time around. While a positive Earnings ESP and a Zacks Rank between 1 (Strong Buy) and 3 (Hold) usually suggest a better chance of beating estimates, this doesn’t seem to be applicable now. Right now, MSFT holds an Earnings ESP of -1.04% and a Zacks Rank of #3.
Factors Influencing MSFT’s Upcoming Results
Microsoft’s fourth-quarter results for fiscal 2026 will likely showcase ongoing Azure capacity expansion and growth in AI monetization, despite higher infrastructure costs and a declining PC market seen between April and June 2026.
Expectations for Microsoft’s Productivity and Business Processes show revenue between $37.0 billion to $37.3 billion, indicating around 12% to 13% growth, while the Zacks Consensus Estimate is $37.16 billion, reflecting a 12.2% increase year-over-year. The Microsoft 365 commercial cloud business is expected to grow 15% to 16% at constant currency. In the previous quarter, this segment saw a 17% revenue increase, largely due to 19% growth in the Microsoft 365 commercial cloud products. Throughout the quarter, Microsoft incorporated AI into various tools. For instance, Copilot now assists with Excel and includes auto-generated infographics. Microsoft also aims to boost enterprise adoption with new offerings like Microsoft 365 E7 and a three-year Copilot purchase option in the CSP.
In the “Intelligent Cloud” sector, projected revenue is between $37.95 billion and $38.25 billion, equating to a growth range of 27% to 28%. The consensus for this sector is around $38.1 billion, representing a 27.6% increase from the previous year.
Azure’s growth is anticipated between 39% and 40%, similar to the last quarter’s reported figures of 39% (actually 40%), driven largely by AI business utilization that exceeded $37 billion, marking a 123% year-over-year spike. However, there will continue to be capacity challenges until 2026, with only minor relief expected in the latter half of the year. Microsoft has also accelerated its infrastructure investments, launching a new multibillion-dollar data center campus in Pecos, Texas, alongside the ongoing development of Fairwater AI’s “superfactory” network in various U.S. locations. Capital expenditures, including finance leases, are projected to surpass $40 billion in this quarter, which will further depress operating margins, expected to slide from 46.3% last quarter to around 44%.
For the “More Personal Computing” sector, revenues are estimated between $11.75 billion and $12.25 billion, with the Zacks Consensus Estimate falling 10.5% year-over-year to $12.03 billion. Anticipated declines in Windows OEM and device revenues could reach the mid-to-high teens, alongside Xbox content revenues expected to drop in the low teens due to tough comparisons with last year’s performance. However, search and news advertising growth is expected to remain in the high single digits, excluding TAC.
On the gaming side, Microsoft reduced Xbox Game Pass Ultimate prices and has introduced updates and features, such as a new “Autopilot” agent named Microsoft Scout, while also adding new options for Copilot.
According to IDC, global PC shipments hit 68.2 million units in the second quarter of 2026, which is a 4.9% decline from the same quarter last year, the first drop after nine consecutive quarters of growth due to memory chip shortages affecting prices. IDC anticipates an even steeper decline of 20% year-over-year by the fourth quarter.
Despite strong demand for cloud and AI, overall operating margins are forecasted to decline compared to last year, influenced by continuous outpacing of infrastructure spending.
MSFT Price and Stock Analysis
Over the past six months, MSFT’s stock has fallen by 18.8%, while the Zacks Computer & Technology sector has seen an overall increase of 8.7%. In contrast, stocks like Dell, HP, and Lenovo have experienced significant gains of 279%, 26%, and 174.7%, respectively, in that same timeframe.
Six-Month Overview
Now, regarding Microsoft’s value at current stock prices, it’s worth noting that it has a trailing 12-month P/S ratio of 7.34x, which is much higher than Zacks Computer (Software) average of 4.98x. The company also holds a Value Score of C.
MSFT’s Valuation Analysis
Investment Considerations
Microsoft is entering the fourth quarter of fiscal 2026 with solid Azure demand and expanding AI monetization, expecting consistent currency growth around 39-40%. However, capacity limitations will linger through 2026 due to rising capital expenditures surpassing $190 billion annually, putting pressure on operating margins, targeting around 44%. Although productivity and business process growth is slowing down, the PC market is facing challenges due to memory chip shortages and declining interest in Xbox hardware. Considering Microsoft’s high valuation in comparison to peers, along with increased competition in cloud, AI, and productivity software from companies like Google, Amazon, and OpenAI, it may be wise for investors to either maintain their current positions or wait for a more attractive entry point rather than engaging in new investments just before earnings are announced.
Conclusion
The outlook for Microsoft’s fourth quarter of fiscal 2026 reflects ongoing strength from Azure and AI cloud services; however, it is tempered by capacity constraints, escalating capital spending, and pressure on margins. With productivity growth slowing and the PC market receding, the near-term financial picture appears mixed with both risks and opportunities. Given the premium valuation of the stock and the growing competition in the field, it might be wise for investors to hold their positions or wait for a more favorable moment for new investments.
