Microsoft Stock’s Big Test: Delivering on a $678 Billion Backlog
Microsoft’s next phase of growth may depend less on new customers than on serving the ones it has. The stock has run hard, returning 37% over three months against 5.0% for the S&P 500. At a market value of about $3.7 trillion, any new business must be large to move the shares. Will new data center capacity arrive fast enough to serve the demand Microsoft (MSFT) has already won?
Microsoft Aims To Double Its Capacity
Microsoft is adding capacity, and demand is still running ahead of it. Management said on the fiscal Q4 2026 call that demand continues to exceed available capacity. The company added another gigawatt of capacity in that quarter. It says it is on track to roughly double its overall capacity in two years.
Azure, Microsoft’s cloud platform, shows the first payoff. Azure and other cloud services revenue grew 43% in fiscal Q4 2026, against 17.7% for the whole company. Management said revenue growth was ahead of expectations. The company credited efficiency gains across its CPU and GPU fleet and process improvements that enable earlier delivery of new capacity. Capacity only pays off if customers have signed up to use it.
How Much Have Microsoft’s Customers Already Signed For?
Microsoft’s customers have signed contracts worth $678 billion that it has not yet booked as revenue. This backlog, called commercial remaining performance obligation, grew 84% as of fiscal Q4 2026. Management expects roughly 30% of it to become revenue in the 12 months after fiscal Q4 2026. That portion comes to about $200 billion of commercial contracts. The amount is up 37% from a year earlier. For comparison, Microsoft’s total company revenue over the past year was $331.8 billion.
Intelligent Cloud was Microsoft’s fastest-growing reported segment in fiscal Q4 2026. Its revenue that quarter was $39.3 billion, up 32% from a year earlier.
The share price appears to assume that much of this growth continues. Microsoft trades at 27.8 times its profit per share over the past year, against 22.4 times for the S&P 500. Its revenue has grown an average 16.1% a year over three years, against 5.8% for the S&P 500. Much of the backlog’s growth, however, came from one customer.
Microsoft’s Backlog Growth Leans Heavily On OpenAI
Excluding OpenAI, the backlog grew 25% rather than 84%. The rest of the customer base is still adding orders, but at a slower pace. Consequently, an analysis of the backlog shows that a substantial portion of recent incremental growth is tied to commitments from OpenAI, underscoring customer concentration in Microsoft’s contracted pipeline.
The risk of overbuilding data centers came up on the fiscal Q4 2026 call. Management answered that its capital spending has shifted toward shorter-lived assets such as CPUs and GPUs. If demand changes, it said, it can slow down. Management gave no figure for the return on that spending.
The fiscal Q1 2027 report will show how this is going. Management guided Azure revenue growth of approximately 45% in constant currency, which strips out exchange-rate moves. Growth at or above that level would show new capacity turning into sales as fast as management expects. A result below that pace, with spending continuing to rise, could indicate that newly deployed capacity is taking longer than anticipated to convert into recognized revenue, or that mix shifts are dampening near-term monetization.
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