Microsoft Corporation: 4Q26 Preview: Azure growth and capex levels in focus

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Microsoft Corporation: 4Q26 Preview: Azure growth and capex levels in focus

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Microsoft Corporation

4Q26 Preview: Azure growth and capex

levels in focus

Reiterate Rating: BUY | PO: 500.00 USD | Price: 401.10 USD

AI execution remains the central debate 17 July 2026

Microsoft reports fiscal 4Q26 results on July 29. Into the print, we see three primary Equity

areas of focus: (1) Azure growth as capacity comes online, (2) capex magnitude and

resulting pressure on margins and FCF, and (3) M365 Copilot adoption and broader AI

Key Changesmonetization. FY27 commentary will also be important, particularly around Azure growth,

data centers buildout timeline, and AI backlog conversion. We reiterate our Buy and $500 (US$) Previous Current

PO, and update our estimates to reflect stronger Azure growth on additional AI capacity. 2026E Rev (m) 329,163.3 329,302.7

2027E Rev (m) 377,943.6 384,695.2

2028E Rev (m) 440,685.7 454,510.5Azure growth and capex levels as key areas to watch

Azure growth remains the key metric to watch, with the company guiding to 39-40% 2027E EPS 19.19 19.50

YoY cc growth. Demand continues to exceed capacity, with the first Fairwater facility in 2028E EPS 22.36 22.91

Wisconsin now fully operational, supporting RPO conversion to revenue. RPO conversion 2026E DPS 3.54 3.55

could be a major growth driver given last quarter’s $627bn commercial RPO level.

Management noted it expects 25% of RPOs to be recognized in the next 12 months, Tal Liani

Research Analyst

which could validate its AI business case. We model 4Q26 capex (incl. leases) of $42bn, BofAS

up 32% QoQ and 74% YoY, on AI capacity expansion, compressing FCF to $14.4bn from +1 646 855 5107 tal.liani@bofa.com

$25.5bn in 4Q25. In our view, Azure YoY growth at or above the 39-40% is needed for