Microsoft FY26 Q4 Cloud Business Surges: Azure Breaks $100 Billion, AI Demand Becomes Strongest Engine Operating profit reached $40.6 billion, up 18% year-over-year, with an operating margin of approximately 45%. In its latest fiscal year 2026 fourth-quarter earnings report, Microsoft delivered a comprehensive beat on expectations. Yet behind these impressive figures lies a complex backdrop: sustained growth in capital expenditures, short-term distortions in profit structure, and the “accounting美化” effect from adjustments to depreciation policies. While markets celebrate the robust demand for AI, questions linger over the sustainability of profit quality. Profit “Distortion” Behind the Beat: One-Time Gains from AI Equity Investments The most intriguing detail lies in the comparison of earnings per share (EPS) data. Under GAAP, diluted EPS came in at $4.81—higher than the adjusted EPS of $4.74. This unusual reversal ends several consecutive quarters during which AI equity investments (notably in OpenAI) had consistently weighed on profits. The root cause: this quarter, Microsoft recognized a one-time net gain from certain strategic AI investments, rather than the previous losses. While this fair-value-driven “windfall” boosts reported net income, it does not stem from core business operations. Therefore, when assessing the company’s true earning capacity, the non-GAAP EPS—excluding this one-time impact—and the 18% year-over-year growth in operating profit remain the more reliable indicators of genuine operational leverage. Core Engine Accelerates: Azure Crosses $100 Billion Annual Revenue Milestone As the market’s primary growth driver, Azure delivered a stellar performance this quarter. Azure revenue surged 43% year-over-year, significantly exceeding the market’s consensus forecast of ~40% and propelling its annual revenue above $100 billion for the first time—marking a new scale milestone for Microsoft’s cloud business. Meanwhile, remaining performance obligations (RPO), a leading indicator of future revenue, jumped 84% year-over-year. Coupled with over 30 million paid Copilot seats, these figures underscore exceptionally strong enterprise demand for Microsoft’s integrated AI and cloud offerings. Emerging Concerns: Capital Expenditure Surge and Depreciation “Magic” Looking ahead, Microsoft’s guidance for next quarter remains optimistic: Azure growth is expected to accelerate further to 45%, well above analysts’ consensus forecast of 41.4%. But behind this optimism lies a heavier reality: capital expenditure guidance continues to climb beyond $50 billion. More concerning is the true quality of reported profits. Amid massive investments in AI infrastructure, Microsoft previously extended the depreciation lives of servers and networking equipment, artificially reducing periodic cost expenses. This accounting estimate change has temporarily masked the impact of heavy capital spending on profitability. Of today’s high 45% operating margin, investors must now ask: how much reflects genuine operational efficiency gains versus artificial “accounting美化” from extended depreciation lives? This question will be central to evaluating Microsoft’s true underlying profit quality going forward. $MSFT