Microsoft closed fiscal 2026 with a sharp acceleration in cloud and AI demand, helping drive a nearly 38% gain in its shares during the third quarter of 2026—the stock’s strongest quarterly performance since 1998. The rally followed a late-July earnings release that showed the company’s results exceeding Wall Street expectations after shares had reached a 52-week low in late June.
Revenue for the quarter ended June 30 rose 18% year over year to $90 billion, while operating income increased 18% to $40. 6 billion.
Azure and other cloud services grew 43%, and annual Azure revenue surpassed $100 billion for the first time. Microsoft 365 Copilot, the company’s suite of AI assistants integrated into products such as Word and Excel, ended the period with more than 30 million paid seats.
The company also reported $678 billion in commercial remaining performance obligations, an 84% year-over-year increase. Microsoft said about 30% of that contracted revenue is expected to be recognized within the next 12 months, while commitments from customers outside frontier AI companies accounted for all sequential growth in the quarter.
Microsoft’s annual results showed the scale of the expansion.
The results also show the cost of competing in AI. Microsoft spent $41 billion on capital expenditures in the quarter, with roughly two-thirds directed toward short-lived assets including CPUs and GPUs. Free cash flow was $19. 6 billion, reflecting the effect of that investment, even as operating cash flow rose 30% to $55. 4 billion.
Microsoft expects capital expenditures to increase again in fiscal 2027 and forecast more than $50 billion for its first quarter under a revised accounting presentation. At the same time, the company expects pressure from weaker PC demand, with Windows OEM and Devices revenue projected to decline sharply.
Analysis: The rally has already priced in some improvement, with Microsoft trading at a premium to the broader information-technology sector on forward earnings. The central investment question is therefore whether accelerating Azure demand, Copilot adoption and contracted cloud revenue can continue to justify heavy infrastructure spending while weaker personal-computing businesses and lower near-term free cash flow weigh on results.