Microsoft's Azure Boom Lifts Cloud Revenues: More Upside Ahead?

Microsoft MSFT is witnessing strong adoption for its Azure platform, which is powering the company’s cloud business. In the fourth quarter of fiscal 2025, its cloud revenues climbed 27% year over year to $46.7 billion, with Azure and other cloud services alone rising 39%.

Management also disclosed that Azure’s annual revenues exceeded $75 billion, highlighting its position as a central growth engine. This “Azure boom” has become the single largest contributor to Microsoft’s top line, pushing overall fourth-quarter revenues to $76.4 billion, up 18% from the prior year.

The momentum stems from enterprises steadily migrating legacy workloads, scaling cloud-native applications and deploying AI-driven solutions. Microsoft’s deep partnership with OpenAI and its Azure AI Foundry platform has already attracted more than 14,000 customers building generative AI models and intelligent agents. Meanwhile, the rollout of Copilot across Microsoft 365 and Dynamics 365 is amplifying Azure usage, creating a powerful flywheel that accelerates both adoption and consumption.

Looking ahead, Microsoft’s confidence in sustained upside is backed by record investments. Capital expenditures reached $24.2 billion in the quarter, with plans to rise to $30 billion in the first quarter of fiscal 2026, setting the stage for as much as $120 billion annually. With more than 400 data centers across nearly 70 regions, the company is expanding at an unprecedented scale to meet rising AI and cloud demand. This scale advantage not only ensures capacity but also reinforces customer stickiness, a key to sustaining growth.

The Zacks Consensus Estimate for fiscal 2026 and 2027 indicates that revenues will grow 13.8% and 14.3%, respectively, on a year-over-year basis.

How Rivals Stack Up Against MSFT in Cloud Space

Amazon AMZN-owned Amazon Web Services (AWS) continues to lead the cloud infrastructure market with approximately 30-32% global market share, ahead of Microsoft and Google. AWS leverages its expansive portfolio of over 200 services and unmatched infrastructure, supported by over $100 billion in annual data center investment. Despite its scale and profitability, AWS faces mounting pressure from Microsoft and Google, whose rapid AI-driven cloud advances threaten its long-term competitive edge.

Alphabet GOOGL-owned Google Cloud Platform (GCP) is emerging as a fierce competitor to AWS and Microsoft Azure, driven by rapid AI-led growth. Google Cloud posted revenues of $13.62 billion in the second quarter of 2025, up 31.7% year over year, with its annual run rate topping $50 billion. Strengths in AI/ML, Vertex AI and Gemini, along with partnerships with NVIDIA and PayPal, are expanding enterprise adoption. Google Cloud Platform continues to scale through global data centers, security and next-gen AI infrastructure.

MSFT’s Share Price Performance, Valuation & Estimates

MSFT shares have appreciated 23.4% in the year-to-date period, outperforming the Zacks Computer – Software industry and the Zacks Computer and Technology sector’s growth of 19.4% and 13.7%, respectively.

MSFT’s YTD Price Performance

From a valuation standpoint, MSFT stock is currently trading at a forward 12-month Price/Sales ratio of 11.83X compared with the industry’s 8.69X. MSFT has a Value Score of F.

MSFT’s Valuation

The Zacks Consensus Estimate for MSFT’s fiscal 2026 earnings is pegged at $15.32 per share, up 2.3% over the past 30 days. The estimate indicates 12.32% year-over-year growth.

Microsoft currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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