Microsoft Beats on Revenue as Azure Tops $100B
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- Microsoft reported Q4 revenue of $90.01 billion vs. $87.62 billion expected and adjusted EPS of $4.74 vs. $4.24 expected; shares rose 3% in extended trading.
- Azure revenue grew 43% (accelerating from 40% the prior quarter), pushing full-year Azure past $100 billion for the first time; the cloud now trails only Amazon Web Services.
- Microsoft posted $35.77 billion in net income, citing a $3.2 billion gain from its Anthropic investment, though free cash flow plummeted 23% to $19.64 billion.
- Commercial remaining performance obligations grew 8% sequentially to $678 billion, driven by commitments from clients other than AI model builders — diversifying away from OpenAI, which was tied to roughly 45% of $625 billion in commercial RPOs as of January.
- Microsoft 365 Copilot surpassed 30 million paid seats, up from 20 million as of July.
- Deutsche Bank flagged 'concentration risk' in Microsoft's OpenAI relationship amid the rise of open-source models, though the bank maintained a buy rating.
- Xbox gaming took an impairment charge during the quarter, and Microsoft launched a cost-efficient AI coding model aimed at lessening reliance on OpenAI.
Why it matters: Microsoft's revenue beat masks the central tension: Azure's 43% acceleration pushed the cloud past $100 billion annually, yet free cash flow fell 23%, showing the AI infrastructure bill is being paid in cash. The 8% sequential backlog growth driven by non-AI-model-builder clients — explicitly contrasted against the 45% OpenAI-linked concentration — indicates Microsoft is actively hedging its biggest AI dependency just as open-source models gain ground.
