Key Points
Microsoft continues to see strong growth, led by its robust Azure cloud platform.
Its new agreement with OpenAI should assure strong cloud computing growth ahead.
Considering this solid outlook, the stock looks reasonably valued at the moment.
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While its stock did not gain much traction, Microsoft (NASDAQ: MSFT) turned in another strong quarter when it reported its fiscal Q1 2026 results.
Its growth was once again led by its cloud computing unit, Azure, which saw revenue surge 40% (39% in constant currencies). It was the ninth straight quarter that Azure revenue has risen by 30% or more, as demand for artificial intelligence (AI) services continues to drive results. Meanwhile, it said that OpenAI has contracted out an additional $250 billion in Azure commitments.
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Overall “intelligent cloud” revenue, which includes Azure, jumped 28% year over year to $30.9 billion. GitHub was another strong contributor to this segment, with GitHub Copilot users now up to 26 million users.
Image source: Getty Images.
Strong growth across the board
Other segments were also strong. The productivity and business processes segment, where Microsoft 365 and LinkedIn reside, saw revenue jump 17% year over year to $33 billion. Growth was strong across its four main solutions in the segment (in the table below), led by a 26% jump in Microsoft 365 Consumer product revenue, helped by an earlier price increase and 7% subscriber growth.
| Metric | Microsoft 365 Commercial | Microsoft 365 Consumer | Dynamics | |
|---|---|---|---|---|
| Revenue growth | 17% | 26% | 10% | 18% |
Data source: Microsoft press release.
Revenue in its “more personal computing” segment — home to Windows and Xbox — increased by 4% year over year to $13.8 billion. The search and news advertising business, which is also part of the segment, led the way with revenue jumping 16%, helped by third-party partnerships. Windows OEM and device revenue, meanwhile, grew by 4%.
Microsoft’s total revenue climbed by 18% year over year to $77.7 billion, with adjusted earnings per share (EPS) jumping 23% to $4.13. The results bested analyst estimates of $75.3 billion in revenue and $3.67 in EPS, as compiled by LSEG.
Looking ahead, the company guided for fiscal Q1 revenue of between $79.5 billion to $80.6 billion, while analysts were looking for revenue of $79.95 billion.
After saying last quarter that it expected its capital expenditure (capex) to grow at a slower pace in fiscal 2026, it said, given accelerating demand, that it now expects capex growth to be faster than last year. Much of its increased spending will go toward graphics processing units (GPUs) and central processing units (CPUs).
Is the stock a buy?
Microsoft continues to produce strong results, as its AI initiatives are helping drive growth across most of its businesses. Azure continues to be its biggest growth driver, and the company is ramping up capex spending to try and keep up with demand.
Meanwhile, the big recent news is that the company finalized a new agreement with OpenAI. As part of the deal, it will now hold a 27% stake worth roughly $135 billion in the large language model (LLM) maker. It will also get exclusive IP (intellectual property) rights and API (application programming interface) access to its models and products through 2032. OpenAI has also agreed to spend an additional $250 billion on Azure services.
That’s a big win for Microsoft, as not only does it keep a big stake in the company, but it will also continue to have access to its models and a lot of revenue coming its way over the next few years.
Looking at valuation, the stock now trades at a forward price-to-earnings (P/E) ratio of 33 times based on fiscal 2026 analyst estimates. That’s around the middle of where the company has traded over the past few years, making it look fairly valued. Given the growth in front of it, though, especially with OpenAI set to spend big on Azure services, I think investors can buy the stock at current levels.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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