Is Microsoft a Buy After Its Latest Earnings Report?

After the market closed on Wednesday, tech giant and AI hyperscaler Microsoft (NASDAQ:MSFT) reported better-than-expected Q4 2026 earnings for the period ending June 30.

Revenue and operating income were both up 18% year-over-year (YoY) to $90 billion and $40.6 billion, respectively. Revenue beat the consensus expectation of $87.6 billion.

Given this impressive performance, is Microsoft’s stock a buy?

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A big beat with a small asterisk

Although revenue and operating income both rose, it was the marquee earnings per share (EPS) number that really smashed expectations, coming in at an adjusted $4.74/share, compared to the consensus of $4.24/share, a 31% improvement over the prior-year quarter.

However, $0.27/share of those earnings was attributable to special items, including a $3.2 billion gain from the company’s investment in the AI company Anthropic. Still, even if we strip out those items, Microsoft’s EPS would be $4.47/share, up 15.8% YoY and still beating the consensus.

In general, as Microsoft CFO Amy Hood put it, it was “a strong quarter to close out the fiscal year.”

But there were a few particularly noteworthy items that deserve special attention from investors.

Cloud comes in clutch

Microsoft’s cloud computing platform Azure has long been the second-most-used cloud computing platform in the world, behind Amazon’s (NASDAQ:AMZN) AWS but ahead of Alphabet’s (NASDAQ:GOOGL) Google Cloud Services. In recent quarters, Google Cloud Services has seen explosive growth in both revenue and profits, which the company attributes to its implementation of AI. AWS has also reported higher top- and bottom-line growth among users using its AI features.

That trend applied to Microsoft as well, with revenue from Azure and other cloud services increasing 43% YoY. Although Microsoft didn’t break out the actual dollar amount, the overall Intelligent Cloud segment, which includes Azure, saw revenue increase 32% to $39.3 billion.

Holding the line on spending

Shares of Microsoft rival Alphabet took a hit after its recent Q2 earnings call, in which it increased its capital expenditures (capex) forecast for the year, largely due to increased spending on AI infrastructure. The Google parent’s capex was already up significantly from the prior year, and investors were starting to question whether the ultimate payoff would justify the massive upfront expense.

Meta Platforms (NASDAQ:META) encountered a similar situation as it narrowed its 2026 capex guidance toward the higher end of its previously announced range, causing its shares to take a post-earnings hit as well.

But Microsoft bucked the trend. True, its quarterly capex of $35.8 billion was more than double the year-ago quarter’s capex of $17.1 billion. But the company announced it was keeping its forecast for total calendar year 2026 capex unchanged at $175 billion following an accounting change. Investors rewarded the stock by sending shares up 8% in after-hours trading.

Even with that 8% increase, Microsoft shares are still down more than 15% over the past year, underperforming the S&P 500 and cloud rivals Alphabet and Amazon. Meanwhile, its forward price-to-earnings ratio has dropped from 30 to a more reasonable 20.

With Azure showing impressive revenue growth and management keeping a lid on AI spending (at least for now), Microsoft looks like a buy.

John Bromels has positions in Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.