Here Are the Numbers That Matter in Microsoft’s Q2 Earnings and How to Play MSFT Stock Now

Microsoft (MSFT) reported its fiscal Q4 2026 earnings on July 29, after the markets closed, and the stock is up sharply following an impressive quarterly performance. Meta Platforms (META) shares, however, are trending lower after the company’s guidance spooked markets. The reaction to Meta’s earnings was no different from its Magnificent 7 peers Alphabet (GOOG) (GOOGL) and Tesla (TSLA), which too plunged following the confessionals after bumping up their 2026 capex.

MSFT’s post-earnings price action is a welcome break for investors as the stock has otherwise been weak this year. Let's take a look at the key metrics from Microsoft’s June quarter earnings and examine the way forward for MSFT stock.

Key Takeaways From Microsoft’s Q4 Earnings

Since hyperscalers’ burgeoning capex to build artificial intelligence (AI) infrastructure is getting outsized attention, we’ll begin by looking at that metric. Microsoft kept its calendar year 2026 capex budget unchanged, which looked quite reassuring given the uptrend in tech companies’ capex. However, Microsoft made an accounting change and would now classify future data center leases from finance leases to operating leases, which would mean these don’t show as capex on its books. It also extended the useful life of its data centers from 15 years to 25 years, which CFO Amy Hood said reflects “our operating history and expected use of these assets.” As a result of these changes, Microsoft expects its calendar year 2026 capex to be around $175 billion versus the previous guidance of $190 billion. The total outlay after adjusting for the accounting change remains unchanged, though.

Looking at the guidance, Microsoft sees its fiscal Q1 2027 capex at $50 billion after accounting for the impact from lease classification. In fiscal year 2027, which would end in June 2027, the company expects its capex to rise year-over-year (YoY), as Hood touted “demand signals across our portfolio.” While the company did not spell out the annual capex number, it expects to post positive free cash flows in the current fiscal year despite higher investments.

The next key takeaway was the acceleration in Azure growth. Revenues rose 43% YoY, versus the 40% growth in the previous quarter and ahead of Street estimates. For the current quarter, Microsoft expects Azure revenues to rise 45% YoY, which easily surpassed the 41.4% growth that analysts were expecting.

Azure annual revenues topped $100 billion for the first time in the last fiscal year. Notably, Amazon (AMZN) Web Services (AWS) is running at an annualized revenue run rate of $150 billion per the Q1 2026 update, and while it maintains its market-leading position, Microsoft has narrowed the gap gradually. Microsoft’s cloud remaining performance obligations (RPOs), which help gauge future demand for its cloud services, rose 8% versus fiscal Q3 to $678 billion. While there have been genuine concerns about OpenAI accounting for a big chunk of Microsoft’s RPO, the company has been trying to allay these fears by diversifying its customer base.

During the earnings call, Hood stressed that the quarter-over-quarter increase in commercial RPO was entirely led by commitments from “customers outside of Frontier model companies," a group that includes tech giants like OpenAI. Hood further added that these RPOs have a weighted average duration of 2.3 years. Moreover, the company expects to realize around 30% of these as revenue over the next 12 months. I think the color on RPO diversification and its weighted duration was quite reassuring and signals strong cloud growth over the next few quarters.

Microsoft 365 Copilot also showed strong traction with paid users rising to 30 million. For context, in its previous update in April, Microsoft put that number at 20 million. The company saw continued momentum in large customers with more than 50,000 seats, and that number increased 7x compared to last year. Finally, while Microsoft reported growth across most metrics in the quarter, its total headcount fell 2% YoY, reflecting its efficiency and cost-cut measures.

How to Play MSFT Stock Now?

Gil Luria, head of technology research at D.A. Davidson, perhaps best described Microsoft’s earnings, terming them a “really good narrative changing result.” He is also spot on in saying that “this whole narrative that Microsoft somehow isn't winning is shattered by this result.”

I believe MSFT stock remains a buy despite the post-earnings rally given the reasonable valuations. It trades at a forward price-to-earnings (P/E) multiple of just over 20x, which makes the risk-reward attractive. The company is witnessing strong growth, and unlike the bearish thesis, I believe AI would not finish software companies like Microsoft and, if anything, would help expand its total addressable market.