How Much Should This Move Change Your View Of Microsoft Stock?

Microsoft (MSFT) stock returned 32.8% between July 2 and October 2, 2026, while the S&P 500 returned 3.5%. The stock had started July down about 20% for the year, with investors worried that AI could disrupt software companies. It turned after Microsoft reported fiscal Q4 2026 results on July 29. So what did that report change at Microsoft, and what did it leave as it was?

What Did Microsoft’s July 29 Report Show?

It showed growth in cloud computing and office software. Revenue at Azure and other cloud services grew 43% in the quarter, a period in which total revenue grew 18%. Microsoft also said it had more than 30 million paid seats for Microsoft 365 Copilot, and that net seat additions had more than doubled from the quarter before.

Investors responded the next day. Microsoft’s market value rose by about $450 billion on July 30, the largest one-day gain in market value by any company, according to The Motley Fool.

Intelligent Cloud Brings In Over Two Fifths Of Sales

Intelligent Cloud, the segment that holds Azure, brought in $39.3 billion of the company’s $90 billion in revenue in fiscal Q4 2026. That segment’s revenue grew 32% in the quarter. Microsoft’s commercial backlog, revenue under contract that it has not yet recorded, grew 84% to $678 billion, and 25% when excluding OpenAI.

You pay more than the market for that growth. Microsoft stock is priced at 28.7 times earnings, against 21.5 for the S&P 500.

Microsoft Is Still Spending Heavily To Add Capacity

Microsoft spent $41 billion on capital expenditures in fiscal Q4 2026. Management said on the July 29 call that customer demand still exceeds its available capacity, and it expects capital expenditures to grow again in fiscal 2027. Even so, management expects the operating margin, 46.8% over the past twelve months, to fall by less than 1 point across fiscal 2027.

After its capital spending, Microsoft keeps only part of its profit as cash. Over the past twelve months, its free cash flow equaled 50.1% of its net income. Free cash flow above 50.1% of net income during fiscal 2027 would show Microsoft keeping more of its profit as cash after paying for new capacity.

Does This Mean You Should Act On MSFT?

Our purpose is to inform you with unique data so that you make the right investment decisions. That said, betting on a single stock is always risky, no matter which direction you choose.

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