$19.6 Billion: The Microsoft Earnings Number That Matters Most

Microsoft (NASDAQ:MSFT) stock is up 13% today on the strength of quarterly earnings that saw revenue increase 18% and cloud computing revenue exceed $100 billion for the first time.

But I believe the most significant number in Microsoft’s fiscal fourth-quarter earnings report is $19.6 billion -- the free cash flow the company generated despite its massive capital expenditures on AI infrastructure.

While some AI companies such as Tesla and Alphabet faltered after their earnings reports this month, Microsoft appears to be in a much stronger position. Here’s why.

Image source: The Motley Fool.

First, a look at Microsoft’s quarter

Microsoft had strong numbers across the board in its fiscal fourth quarter of 2026 (ending June 30). Revenue was $90 billion, up from $76.4 billion a year ago, and net income was $35.76 billion, an increase of 31% from the same period. Microsoft’s earnings per share came in at $4.81 versus $3.86 in fiscal Q4 2025.

For the full year, revenue was $331.8 billion, up 18% from fiscal 2025, and net income of $133.7 billion was up 31% from a year ago. Full-year EPS was $17.95 versus $13.64 in 2025.

Microsoft recorded year-over-year revenue gains in nearly every segment this quarter, with only Windows and Xbox lagging.

Source: Microsoft

“We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results," CEO Satya Nadella said. “This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation.”

Why Microsoft stands out from the crowd

From a revenue perspective, Microsoft had a solid report. But so did Alphabet, which reported revenue up 24% to $119.8 billion, and Tesla, which reported revenue of $28.2 billion, up 26% from a year ago.

The problem for both those companies was their expanding capex and sagging cash flow. Alphabet announced an increase in its projected capex for this year from $185 billion to $200 billion, and reported free cash flow of negative $5.9 billion. Alphabet stock fell 6% on the heels of the report.

Tesla fared even worse. Elon Musk’s company reported a free cash flow of negative $1.1 billion, announced it would spend $25 billion in capex this year, and would borrow up to $30 billion. Tesla stock cratered, falling 18% over a week, marking its worst performance since 2022.

But Microsoft is a different story. Free cash flow fell 23%, but still registered a strong $19.6 billion. And CFO Amy Hood told analysts on the company’s earnings call that Microsoft expected to remain free cash flow positive in fiscal 2027 as well.

Microsoft also differs in that it didn’t increase its capex plans. The company previously had announced it would spend as much as $190 billion this calendar year on capex; Hood announced in the earnings call that the company’s guidance remains unchanged, but because of an accounting change, the budget item is now $175 billion -- some data center leases are shifting from finance leases to operating leases, which aren’t included in capex.

Just as important, Microsoft indicated it was ready to be flexible with its capex -- particularly as the supply of GPUs, CPUs, storage, and memory products remains tight. “If the demand environment changes, you just slow down what is, in fact, the largest component, and the driver of (cost of goods sold),” Hood said. “… You can stagger the timing of the build-out.”

That kind of thinking is important, as markets have proven sensitive to AI spending right now.

Why I think Microsoft is a good buy now

Microsoft still has huge plans to spend on AI, and it’s not backing off from its long-term plans. But this quarter’s earnings report indicates that it can fund its AI investments while still generating billions in free cash flow. That’s a feat that eluded both Tesla and Alphabet.

As investors increasingly focus on how big tech companies fund their AI build-outs, Microsoft’s financial position sets it apart.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Tesla. The Motley Fool has a disclosure policy.