Microsoft Corp. NASDAQ: MSFT reports earnings for the fourth quarter of 2026 on July 29. Microsoft is likely to beat both high and low estimates. However, investors will focus more on what management has to say about capital expenditures (CapEx) in fiscal year 2027 (FY2027).
Analysts expected diluted earnings per share (EPS) of $4.21, up 15.3% from last year. Microsoft has beaten estimates for four straight quarters. That part of the story is almost a trend and that’s why MSFT has delivered a total return of over 680% over the last 10 years.
But what happened in the past doesn’t take away the real tension that investors face. That boils down to one line item: CapEx usage. MSFT is down 29% from record highs, just as AI trading continues to grow. Investors are concerned that Microsoft has unleashed a cash machine that will never stop.
Why the CapEx number beats the Earning Beat
CapEx for the third quarter came in at $31.9 billion, up 49% year over year. Not surprisingly, free cash flow (FCF) fell 22% to $15.8 billion. That combination—rising spending, shrinking income—summed up what made Wall Street nervous on July 29.
Because this report marks the end of its fiscal year, Microsoft should be targeting FY2027. Analysts expect CapEx growth in the 20% to 30% range, which would mean around $220 billion. That number will set the tone for the entire AI industry, not just Microsoft.
A figure of around 220 billion would represent a growth of 20% to 30%, in line with the existing share price. It shows discipline, not excess. That list is also important because it keeps CapEx growth under Azure. Microsoft’s cloud engine can’t continue to finance its buildout if spending outpaces the growth it’s meant to support.
Analysts are already tracking this figure closely. Revenue for the full year 2026 is estimated between $324 billion and $327 billion, and EPS is guided between $16.46 and $17.10. Those figures assume that Azure continues to grow near the guidance, not above it.
If CapEx guidance reaches that expected range, the market can continue to believe that Microsoft’s AI bet is measured correctly. The hotter it is, the FCF concern from Q3 gets worse, not better.
Azure Growth Rate The Real Scoreboard
Azure’s growth is the number that determines whether Microsoft’s use of it looks smart or reckless.
The direction needs to grow at 30%-40%. Anything below that would be a red flag. It can mean that CapEx is rising faster than the business can justify.
Third-quarter revenue for Azure and cloud services grew 40%, or 39% on a constant basis. That’s the bar Microsoft has to clear again on July 29.
Microsoft Cloud’s total revenue reached $54.5 billion, up 29%. AI revenue exceeded $37 billion on a year-over-year basis, up 123% year-over-year. Copilot’s paid commercial seats are over 20 million, growing 250% year over year. These are the engines that CapEx aims to support.
The calculations only work if Azure keeps pace. Even a slight drop here can make a CapEx conversation very uncomfortable.
The Uside Case Almost No One Puts a Price Inside
There is more bullish for the situation, but it’s a long shot. Azure growth could be over 40%.
That would suggest that the use of AI is already paying off faster than expected, not just keeping pace. It’s the kind of number that could dominate the AI business at large, not just for Microsoft.
Few analysts expected it. It is probably too early for that kind of acceleration to be seen. Still, it’s a situation worth watching for anyone holding MSFT on the payroll.
Microsoft’s commercial backlog offers support either way. The remaining operating obligation reached $627 billion in Q3, up 99% year over year. That backlog gives Microsoft visibility into revenue for years, even if Azure’s near-term growth remains scope-dependent.
Where Stock Lives Heading to Print
Technically, MSFT looks to be holding neutral. Shares are sitting near $380, just below its 50-day moving average of $400.
The stock rebounded from an April low near $345 to a June high above $460, then retreated in July. That leaves MSFT tied directly to earnings, with no clear technical bias in either direction. But it is becoming increasingly difficult for long-term investors to find hope in the dead money story.
What This Means for Investors
The setup is straightforward, even if the stakes are high. Expected EPS beat. CapEx guidance of close to $220 billion is expected and sustainable. CapEx guidance objectively above is a real risk.
Microsoft is trading below its 10-year average, even after this year’s AI build. Analyst sentiment remains highly positive, with around 43 Buy ratings compared to six Holds and a consensus price target of $556.
That bullish consensus takes management to keep CapEX disciplined. 29 July confirms that thinking or forces a rethink. A bit of income is a table stake. The CapEx number will tell the real story.
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