Microsoft stock has erased its entire year-to-date decline after a fiscal 2026 fourth-quarter report showed cloud revenue up 27% and a $678 billion cloud backlog. CEO Satya Nadella pointed to rising demand for AI sovereignty, while CFO Amy Hood said Microsoft expects to stay free-cash-flow positive through fiscal 2027.
Microsoft shares have erased a year-to-date decline that once topped 25%, rallying since the company posted its fiscal 2026 fourth-quarter report. The results showed cloud revenue up 27% year over year, which lifted overall revenue by 18%.
Cloud revenue drives the rebound
Cloud computing made up almost one-third of Microsoft's total sales in fiscal Q4. The company also disclosed a $678 billion backlog for its cloud platform, more than ten times the revenue the segment generated during the quarter, which gives Microsoft meaningful revenue visibility.
LinkedIn and search advertising also posted double-digit percentage growth. However, Xbox content and services revenue fell 10%, dragging down the "more personal computing" segment, though that unit carries far less weight than cloud in Microsoft's overall results.
AI demand keeps building
On the earnings call, CEO Satya Nadella said AI sovereignty is "increasingly top of mind for our customers" — an arrangement that lets customers run cloud platforms in disconnected, customer-controlled environments. Microsoft will also be among the first cloud providers to deploy next-generation rack-scale AI infrastructure, alongside Amazon and Alphabet; the three companies together control more than 60% of the cloud market.
Revenue from Microsoft's Foundry platform, built for agentic AI workloads, more than doubled year over year.
Free cash flow protects the build-out
CFO Amy Hood said Microsoft expects to remain free-cash-flow positive in fiscal 2027, meaning the company can fund its AI infrastructure build-out with operating income instead of borrowing or issuing new shares. Despite the rally, Microsoft trades at a P/E ratio of 27.4, similar to the S&P 500 average — an index filled with companies growing far slower than Microsoft.
Source: The Motley Fool
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