July 30, 2026
BlogMicrosoft: Expect Capacity Constraints, CapEx Acceleration to Continue
It looks like Microsoft customers should expect continuing cloud capacity constraints and hefty Microsoft capital expenditure spending for the foreseeable future.
Microsoft closed out its fiscal 2026 and looked ahead to 2027 on its July 29 earnings call. Revenue in Q4 was $90 billion, up 18 percent from the year-ago quarter, while profit was $35.8 billion, up 32 percent.
Microsoft’s Azure cloud business grew 43 percent in Q4. (In Q3 FY26, that number was 40 percent, which is the percentage that analysts were expecting again in Q4.) Azure surpassed $100 billion in annual revenue for the first time, according to Microsoft. The company is projecting Azure growth could hit 45 percent in Q1 FY‘27, thanks to a mix of AI and non-AI-specific workloads.
In Q4, Microsoft’s capex spending was $41 billion, which included spending on datacenters and their increasingly expensive components. Two-thirds of the capex outlay was for “short-lived” assets, primarily CPUs and GPUs; while the remainder was for long-lived assets like datacenters and leases.
In Q1 FY27, Microsoft expects capex spending to be in excess of $50 billion. (That figure includes a change Microsoft is making in FY27 around extending the estimated useful lives of datacenters and office buildings from 15 to 25 years, moving more of its future datacenter leases from finance leases to operating leases.)
Microsoft added 31 new datacenters across five continents in Q4, bringing its total of new datacenters to 88 for the year. It also added another gigawatt of capacity in Q4, doubling its overall capacity in two years, officials said. Company officials didn’t provide a new figure as to how much of that capacity goes towards its own first-party apps and services versus its biggest Azure customers like OpenAI.
Even though Microsoft is focused on improving efficiencies and bringing capacity online faster than ever, that increased capacity is “immediately monetized,” officials acknowledged. Demand continues to surpass supply, Chief Financial Officer Amy Hood said. She offered no estimate as to when and if that situation might improve.
M365 Copilot: 30 Million Paid Business Users
Microsoft also now has 30 million paid commercial Microsoft 365 Copilot seats, as of this quarter, up from 20 million last quarter. That means roughly seven percent of the 450 million-plus M365 commercial customers now have paid M365 Copilot licenses. “Paid” doesn’t mean $30 per user per month for all of those 30 million, as Microsoft has been discounting M365 Copilot to increase sales, with many customers now receiving 20 to 40 percent discounts off the retail price.
CEO Satya Nadella told earnings call attendees that Microsoft is moving from months to days in terms of how long it takes to get customers to buy a M365 Copilot license. He said “usage intensity” of M365 Copilot has increased significantly, to the point that it is “at the same level” as tools like Outlook or Teams. Nadella also said the M365 Copilot “product shape has changed pretty dramatically,” even in just the last quarter, with M365 Copilot now including Chat, Cowork and Autopilot (always-on autonomous agents). He reiterated that Microsoft plans to launch a flagship M365 Copilot Super App in the coming quarter that will target both consumers and commercial customers.
Officials also said that demand for the company’s $99 per user per month Microsoft 365 E7 bundle, which includes M365 Copilot and Agent 365, has been solid, with “hundreds” of enterprise customers purchasing “millions of seats” since the E7 SKU became generally available two months ago.
