Microsoft disclosed that Azure surpassed $100 billion in annual revenue for the first time on its fiscal 2026 fourth-quarter earnings call, yet the stock has trailed the broader market this year. Shares sit roughly 3% higher year to date after a 27% decline earlier in the summer, and Microsoft now trades at a higher valuation than key hyperscaler rivals despite double-digit revenue and profit growth.
Azure crosses $100 billion
Microsoft disclosed that Azure topped $100 billion in annual revenue for the first time on its earnings call for the fourth quarter of fiscal 2026, which ended June 30. The company had not previously broken out Azure's revenue publicly, though it plans to keep reporting the figure going forward.
The disclosure gave investors some confidence that Microsoft's AI investments are paying off. Still, Microsoft stock is up about 3% this year, a modest gain that leaves the shares trailing the broader market. That follows a stretch in which the stock suffered a 27% year-to-date decline this summer before recovering.
Capex and the Copilot perception problem
Heavy spending may be weighing on sentiment. Microsoft's capital expenditures reached $116 billion in fiscal 2026, and its Copilot platform suffers from a perception that it isn't the AI tool of choice outside Microsoft environments such as Windows or Visual Studio.
Microsoft's relationship with OpenAI has also become a mixed blessing. Azure once held exclusive hosting rights to frontier models including GPT-6 and its predecessors, and Microsoft embedded OpenAI technology across many of its products. But the two companies have since moved to develop AI more independently of each other, a separation that may have left Microsoft behind some competitors.
Growth still outpaces the stock price
Despite the sentiment overhang, Microsoft's underlying numbers grew briskly. Revenue increased 18% to $332 billion in fiscal 2026, while costs and expenses grew more slowly. As a result, Microsoft reported $134 billion in net income for the fiscal year, 31% more than a year earlier.
Microsoft's P/E ratio of 28 is arguably reasonable given its growth. Still, Alphabet's revenue grew 24% in the first half of 2026 with a P/E ratio of just 17, and Amazon trades at 20 times earnings. Users have also gravitated toward AI platforms outside Microsoft's ecosystem, and both Alphabet and Amazon are available at lower valuations. Existing Microsoft shareholders should probably keep holding, but the relative value gap suggests fresh cash may find better opportunities elsewhere.
Source: The Motley Fool
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