Microsoft reported contracted backlog of $678 billion in its cloud business at the end of the quarter, up from $627 billion in the prior quarter. It said all the sequential gains, or about $50 billion in future sales, were driven by commitments from companies outside the leading U.S. AI model makers.
Its M365 Copilot paid seats totaled more than 30 million, compared with 20 million reported last quarter. Analysts on average were expecting 26.9 million Copilot seats, according to Reuters calculations based on estimates from Citi, Morgan Stanley, BNP Paribas and Wells Fargo.
Microsoft has forecast spending $190 billion this calendar year, part of the more than $700 billion in unprecedented Big Tech outlays that have strained the companies' cash flows and stoked fears of capacity overbuild. Microsoft's free cash flow for the fiscal 2026 fourth quarter was $19.6 billion, above analyst estimates of $13.44 billion, according to Visible Alpha data, but down 23% from the previous year.
Capital expenditures for the April-June quarter were $41 billion, up more than 70% from last year, and compared with market estimates of $42.37 billion. Microsoft reported $31.9 billion in capital spending in the prior three-month period.
But much more spending could be coming.
In a securities filing, Microsoft said it has data center leases of $329.1 billion that have not yet commenced, with leases starting between its fiscal year 2027 and fiscal year 2033, with lease terms between one and 20 years. Microsoft said some of the leases are subject to certain contractual conditions being met before they begin.
"They will last many, many, many years. It can be lumpy even in terms of when leases are signed," said Jonathan Neilson, Microsoft's vice president of investor relations. "Again, it always comes back to the demand signal we're seeing."
Meanwhile, the company is cutting dependence on OpenAI's technology by adding Anthropic's models into its offerings and developing in-house AI, while leaning on its deep business ties to boost adoption of the $30-a-month Copilot, including through deals such as the one with Accenture earlier this year.
The company is among the worst performers in the so-called "Magnificent Seven" group of mega-caps with an 18% drop so far this year, trailing cloud rivals such as Alphabet.
Microsoft has said its cloud growth is being held back by capacity constraints that it expects to persist at least through the end of 2026. That has forced the company to choose between powering its own AI services such as the 365 Copilot assistant and renting computing power to customers through Azure.
Still, some analysts say the concerns around Microsoft are overblown, noting that AI demand remains strong and it has made efforts to ease constraints through deals beyond its own data-center build-out, such as a recent tie-up with France's Mistral.
Overall revenue for the quarter rose 18% to $90 billion, beating estimates. Its per-share profit, excluding the impact from investments in OpenAI, was $4.74, beating expectations of $4.24.
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