Satya Nadella's Microsoft Now Has a $678 Billion Sales Backlog, Up 84% Year Over Year, After Azure Topped $100 Billion in Annual Revenue. Does That Growth Justify the Stock's Forward P/E of 25?
Key Points
A $678 billion sales backlog shows that Microsoft Cloud will remain a major part of the business.
Artificial intelligence tailwinds are poised to continue for multiple years, giving cloud revenue a vast runway for growth.
Microsoft shares have underperformed the S&P 500 in 2026, but that shouldn't last for long.
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Microsoft (NASDAQ: MSFT) continues to deliver exceptional quarterly results, with cloud computing playing a major role. Not only was cloud revenue up by 27% year over year in its fiscal 2026 fourth quarter, but that growth came along with sales backlog growth of 84% year-over-year to $678 billion.
It also came during a period when Microsoft Azure topped $100 billion in annual recurring revenue. All of these details create the narrative of a growing business, and for investors considering buying now, Microsoft's forward P/E ratio of 25 is the icing on the cake.
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High cloud revenue visibility makes future growth more predictable
Microsoft has been consistently delivering double-digit percentage revenue growth rates for many years. It has grown its top line at a compound annual rate of 14.6% over the past decade, and that compound annual growth rate (CAGR) accelerated to 16.1% over the past three years.
Artificial intelligence tailwinds that have boosted the demand for enterprise cloud solutions are the major catalysts. Microsoft Cloud made up roughly two-thirds of total revenue. This segment is also growing faster than most of Microsoft's businesses, so its continued success should lift total revenue and net income growth rates.
Microsoft Cloud revenue also came to 8.7% of its commercial remaining performance obligations. The backlog is growing at a faster rate than realized revenue. Eventually, all of that backlog will be realized as sales, which makes the stock's forward P/E ratio of 25 quite compelling.
AI-fueled cloud growth is a multiyear trend
The shift isn't just happening at Microsoft. Amazon's (NASDAQ: AMZN) cloud platform saw its highest revenue growth rate in more than four years, while Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) reported 82% year-over-year growth in Google Cloud revenue in the second quarter.
Cloud computing is becoming more important because it is the digital backbone of so many AI platforms and services. Grand View Research projects a 30.6% CAGR for the artificial intelligence industry through 2033, and all of that growth will require more complex cloud computing plans and storage. It's one of the main reasons why hyperscalers are scrambling to accumulate as much compute capacity as possible. They'll need more infrastructure to keep up with demand.
Although Microsoft has made many of its early investors wealthy, the stock has largely missed out on AI-driven momentum in 2026. It's only up by roughly 3% this year despite revenue and net income growth rates comfortably exceeding that return. These types of mismatches do not last forever, and a low valuation combined with strong fundamentals may serve as an open invitation for patient investors.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.
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