Microsoft (MSFT) Q4 2026 earnings summary

Executive summary

• Fiscal year revenue reached $331.8 billion, up 18% year-over-year, with Microsoft Cloud revenue at $214 billion for the year and $59.3 billion for Q4, up 27%, and Azure surpassing $100 billion, up 43% for the quarter.

• Operating income grew 21% to over $155 billion for the year and $40.6 billion for Q4, with operating margin at 45%.

• Net income increased 31% to $133.7 billion for the year and $35.8 billion for Q4, with diluted EPS of $4.81 (GAAP, up 32%) and $4.74 (non-GAAP, up 23%).

• Over 30 million paid Microsoft 365 Copilot seats, with net seat adds more than doubling sequentially and strong enterprise adoption.

• Several discrete items, including a $3.2 billion gain from Anthropic investment and lower-than-expected retirement expenses, benefited EPS by $0.27, partially offset by Xbox severance and impairment charges.

Financial highlights

• Q4 revenue was $90 billion, up 18% year-over-year; gross margin dollars increased 15% to $60.5 billion, and operating income rose 18% to $40.6 billion.

• Company gross margin percentage was 67%, down year-over-year due to sales mix shift to Azure and AI infrastructure investments.

• Free cash flow was $19.6 billion, with $10.2 billion returned to shareholders in Q4 and $43 billion for the full year.

• Commercial bookings grew 18% excluding OpenAI, and commercial remaining performance obligation (RPO) grew 84% to $678 billion.

• Cash flow from operations was $55.4 billion for the quarter, up 30% year-over-year.

Outlook and guidance

• FY 2027 expected to deliver double-digit revenue and operating income growth, with operating expenses growing mid to high single digits.

• CapEx for FY 2027 projected to grow year-over-year, exceeding $50 billion in Q1, reflecting ongoing demand for AI and cloud.

• Operating margins expected to be down less than a point for FY 2027, with free cash flow remaining positive.

• Q1 revenue guidance: $89.85–$90.95 billion, up 16%–17%, with COGS growth of 23%–24%.

• Effective tax rate for FY 2027 and Q1 expected at approximately 20%.