Microsoft delivered Q4 results that beat guidance by approximately 5%, with GAAP net income rising 31% and non-GAAP EPS of $4.74. However, the strong headline numbers mask underlying challenges, as the $4.74 EPS includes a $3.2 billion Anthropic gain, which is excluded from Microsoft's OpenAI revenue disclosures. When adjusted for discrete items, the quarter's performance was more modest, reflecting the company's continued focus on AI investments amid margin pressures. The results demonstrate Microsoft's ability to deliver strong growth, with Azure revenue growing 43% year-over-year on a constant-currency basis, four percentage points ahead of consensus estimates. Management has guided for 45% Azure growth in the current quarter, again exceeding Wall Street expectations by four percentage points.
Microsoft is instructing its developers to primarily use OpenAI's top-tier AI model, GPT-5.6 Sol, for coding projects to maximize efficiency and value from their AI token investments. This strategic move reflects Microsoft's strategy to leverage its early investment in OpenAI and optimize AI spending amid rising costs in the tech industry. While Microsoft offers access to over 11,000 AI models, including those from Anthropic, it prefers defaulting to OpenAI's model for internal tools like GitHub Copilot. The company continues to adjust model defaults as technology evolves and encourages employees to balance AI usage with business outcomes.
Microsoft Corp. has revealed that OpenAI accounted for approximately 70% of its artificial intelligence revenue during the fiscal year ended in June, with the software giant recording $24.1 billion in sales from the AI firm. The company has also disclosed that OpenAI-related commitments represented roughly 45% of its $625 billion commercial cloud backlog as of Q2 fiscal year 2026. Under the restructured partnership agreement, OpenAI pays Microsoft for computing power, costs associated with building AI models and a share of its revenue, with the deal providing both sides with predictability through 2030. The 70% figure is both Microsoft's greatest strength and its most obvious vulnerability right now, effectively giving Microsoft a multi-year head start in enterprise AI adoption while creating significant concentration risk.
Microsoft has disclosed its total AI business twice, once for the quarter ending in December 2024 when the company said the unit was on pace to generate more than $13 billion in sales over a year, and in the quarter ending in March when Microsoft said it was on track to produce more than $37 billion. The broader AI business is running at somewhere between $37 billion and $40 billion in annualized revenue as of mid-2026, with OpenAI's revenue engine primarily driven by ChatGPT subscriptions and API usage. The company's 18% revenue growth and 16% constant currency growth at a 38.8% clean margin demonstrate strong operational performance, though investors continue questioning how much of Microsoft's revenue is generated by OpenAI versus other AI services. Azure's accelerating growth has reinforced its role as one of the fastest-growing cloud businesses among hyperscale providers, with continued enterprise spending on artificial intelligence infrastructure helping the company outperform expectations despite growing competition across the AI sector.
Wall Street firm Citi has raised Microsoft's 12-month price target to $600 from $570 after strong fiscal results and growth in AI and cloud services. The new target implies about 40% upside from the current price, driven by accelerated growth in artificial intelligence and cloud computing segments. According to Seeking Alpha analyst data, Microsoft carries 39 Strong Buy, 14 Buy, and 3 Hold ratings, with no analysts currently recommending selling the shares. CoinCodex forecasts suggest Microsoft could experience some consolidation during the second half of 2026, with average projected prices remaining largely between the low $410s and upper $480s through the end of the year. However, momentum is expected to improve during the first half of 2027, with forecasts steadily climbing through the spring, reaching the $550 to nearly $600 range between May and July 2027, while the model's highest projection reaches approximately $623.
