Microsoft Rides ‘AI Infrastructure Wave’ as Cloud Services Demand Jumps

Microsoft ended its fiscal year with a blowout fourth-quarter performance, driven by demand for cloud and artificial intelligence (AI) services that led to a 34% increase in Azure’s annual revenue to a record $75 billion.

Enterprises accelerating their cloud migration as well as increased AI usage across Microsoft’s cloud stack boosted the quarter. Nearly all of the company’s business units grew revenue by double-digits.

Shares of Microsoft soared by 7.65% to $552.50 in after-hours trading.

“It was a very strong close to what was a record fiscal year for us,” said Microsoft CEO Satya Nadella, during a conference call with analysts, many of whom began their questions with congratulatory greetings.

Microsoft’s cloud revenues — which includes Azure and other cloud services across its product lines — was $168 billion for the year, up 23% year over year. “We continue to lead the AI infrastructure wave and took share every quarter,” Nadella added.

The CEO said three things drove cloud revenue growth in the quarter: classic migrations to the cloud from on-premises; scaling of cloud-native applications excluding AI workloads; and new AI workflows.

Morgan Stanley analysts believe Azure growth will continue to stay robust. In a recent research note shared with PYMNTS, the analysts cited their 2025 CIO survey showing that Azure was the preferred public cloud vendor — and it is expected to stay on top over the next three years.

The CIOs said 52% of their application workloads are in Azure and they are expected to stay put over the next three years as cloud adoption continues to grow, according to the survey.

“Azure AI remains a key priority with 57% of CIOs expecting to use Azure OpenAI Services and 31% of CIOs also expecting to use GitHub Copilot over the next 12 months,” according to Morgan Stanley. “These trends point to further consolidation of cloud workloads on Azure over the near and medium term.”

Despite its robust growth potential, Microsoft shares are trading at “only” around 29 times its earnings per share on a GAAP basis, the analysts said, calling the company a “Gen AI winner.”

Read more: Microsoft Seeks to Extend Access to OpenAI Technology

‘Sovereign’ Cloud

During the fiscal year, which ended on June 30, Microsoft said it opened new data centers across six continents and now has more than 400 facilities in 70 regions. That’s “more than any other cloud provider,” Nadella said, adding, “We continue to scale our own data center capacity faster than any other competitor.”

Microsoft also introduced its “sovereign” cloud service in the quarter, in which any data storage and processing stays within a country’s borders.

Nadella said Microsoft will bring Copilot Vision to Windows 11 PCs, where users can share their screens and get real-time insights and assistance. The company is ending support for Windows 10 in October.

In the fourth quarter, Microsoft reported net income of $27.2 billion, or $3.65 per share, an increase of 24% compared with $22 billion, or $2.95 per share in the same quarter a year ago. Revenue came to $76.4 billion, up 18% from $64.7 billion year over year.

The software giant beat Wall Street analysts’ consensus expectations, which were $73.8 billion in revenue and earnings of $3.38 per share, for the quarter, according to S&P Global Market Intelligence.

Nadella highlighted the continued expansion of AI services as a growth engine for Azure, citing deployments such as Nasdaq’s use of Azure AI Foundry agents and OpenAI’s reliance on Azure Cosmos DB and PostgreSQL. Azure AI Foundry, launched this year, now supports 50 OpenAI models and more than 14,000 customers using it to build agents.

Productivity and business processes revenue rose 16% to $33.1 billion, with Microsoft 365 Commercial cloud revenue up 18%. Microsoft added a record number of new Copilot customers during the quarter, including Barclays, UBS and Wells Fargo, each buying tens of thousands of seats.

“Our family of Copilot apps has surpassed 100 million monthly active users across commercial and consumer” markets, Nadella said. “When you take a broader look at the engagement of AI features across our products, we have over 800 million monthly active users.”

Gaming revenue increased 10% in the quarter, with Xbox content and services up 13%, helped by first-party titles and record usage of Minecraft.

For the full fiscal year, Microsoft reported revenue of $281.7 billion, up 15%. Net income was $101.8 billion. Earnings per share for the year was $13.64, a 16% increase.

Looking ahead, Microsoft expects continued double-digit growth in revenue and operating income in fiscal 2026, supported by strong demand for cloud and AI. Capital expenditures are projected to exceed $30 billion in the first quarter to meet rising infrastructure needs.

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