Microsoft has forecast lower capital expenditure than Wall Street expected for its newly begun 2027 fiscal year, after changing how it accounts for data center leases, even as the company reported cloud revenue growth ahead of analyst projections. The company said Azure revenue rose 43% in its fiscal fourth quarter, above a consensus estimate of 39.98% compiled by Visible Alpha, and forecast Azure growth of 45% on a constant-currency basis for the current quarter, well above the 40.92% analysts had anticipated.
The shift in lease accounting, under which Microsoft will now spread long-term data center leases over 25 years rather than 15, has the effect of reducing annual reported capital expenditure. Microsoft said its underlying spending plans remain unchanged, projecting fiscal first-quarter capital expenditure of $50 billion, below the $56.02 billion analysts had modelled, and calendar 2026 capital spending of $175 billion, below its own prior guidance of $190 billion. Capital expenditure for the April-to-June quarter came in at $41 billion, up more than 70% year-on-year, against market estimates of $42.37 billion.
Free cash flow for the fiscal fourth quarter stood at $19.6 billion, above the $13.44 billion analysts had forecast but down 23% from the prior year. Microsoft disclosed data center leases worth $329.1 billion that have not yet commenced, with start dates running from fiscal 2027 through fiscal 2033, some contingent on contractual conditions. Contracted cloud backlog reached $678 billion, up from $627 billion in the prior quarter, with the increase attributed to commitments from customers outside the largest US AI model developers.
Chief Executive Satya Nadella told analysts on a conference call that Microsoft, historically dependent on OpenAI for core AI models underpinning products such as Copilot, is now developing its own models and chips, generating efficiency gains of as much as 40%. He described an approach in which Microsoft and its customers would select AI technologies according to cost and performance, and said the company was already applying this internally. M365 Copilot paid seats reached more than 30 million, up from 20 million the prior quarter and above an average analyst estimate of 26.9 million drawn from Citi, Morgan Stanley, BNP Paribas and Wells Fargo.
The results follow Alphabet's cloud unit reporting an 82% surge in revenue the previous week, a performance that exceeded market expectations. Dave Wagner, portfolio manager at Aptus Capital Advisors, said the outcome suggested Azure was holding its position even as Alphabet appeared to be gaining ground. Overall quarterly revenue rose 18% to $90 billion, ahead of estimates, with per-share profit excluding the impact of Microsoft's OpenAI investments reaching $4.74, above a projected $4.24. Microsoft forecast a fiscal first-quarter sales midpoint of $90.4 billion, above the $89.66 billion analysts had modelled, according to LSEG data.
The revised lease-accounting treatment leaves reported capital expenditure figures less directly comparable with prior periods, a factor likely to shape how the scale of continued data center commitments is assessed against cash generation in coming quarters.
