Microsoft's Intelligent Cloud Expands Rapidly: Can the Upside Persist?

Microsoft's MSFT Intelligent Cloud is powering ahead at an impressive pace. In the fourth quarter of fiscal 2025, the segment delivered $29.9 billion in revenues, up 26% year over year, while Azure and other cloud services rallied 39%, well ahead of estimates. This growth was driven by strong enterprise demand and the rapid adoption of AI workloads across Microsoft’s cloud ecosystem.

Recent innovations further strengthen this trajectory. The rollout of GPT-5 across Azure AI Foundry and Copilot, the opening of a new datacenter region in Austria, and enhancements to Microsoft Fabric for AI readiness all reinforce Microsoft’s ability to capture rising AI demand.

AI continues to be the primary growth engine. Azure continues to see strong demand for AI infrastructure, while GitHub Copilot and Microsoft 365 Copilot adoption highlight how AI and cloud are converging into sticky, revenue-generating productivity tools. These developments deepen customer engagement and reinforce Microsoft’s competitive moat, giving investors strong confidence in continued upside.

Looking ahead, management guided Intelligent Cloud revenues of $30.1-$30.4 billion for the first quarter of fiscal 2026, signaling continued strength. According to the Zacks model, Intelligent Cloud revenues are projected to rise 20.7% in fiscal 2026 and 21.2% in fiscal 2027, supporting a durable long-term outlook.

Microsoft’s confidence is also evident in its record $24.2 billion in capital expenditures, with plans to raise this to $30 billion in the first quarter of fiscal 2026 to expand AI infrastructure and data centers. With deep AI investments, strategic partnerships and strong enterprise adoption, Microsoft’s Intelligent Cloud is well-positioned to deliver consistent upside and cement leadership in the AI-powered cloud era.

Microsoft Faces Rising Cloud Competition

Amazon AMZN-owned Amazon Web Services (AWS) leads the cloud market with 30-32% share, unmatched scale, 200-plus services and a massive $100 billion in annual infrastructure spend. Still, Amazon trails Microsoft Azure in enterprise and hybrid adoption. Although Amazon’s breadth and legacy remain powerful strengths, surging innovation from Microsoft and Google is eroding AWS’ edge, raising questions about its ability to defend long-term leadership in the fast-shifting cloud and AI race.

Alphabet GOOGL-owned Google Cloud Platform is rapidly gaining ground, posting 32% annual growth and $13.6 billion in quarterly revenues in the second quarter of 2025. Fueled by AI infrastructure demand, Google Cloud leverages TPUs, Vertex AI and Gemini to strengthen its competitive edge. Partnerships with leaders like NVIDIA and PayPal are accelerating enterprise adoption. With expanding global data centers and robust security, Google Cloud is positioning itself as a serious rival to Microsoft Azure and Amazon AWS in the evolving cloud market.

MSFT’s Share Price Performance, Valuation & Estimates

MSFT shares have appreciated 22.2% in the year-to-date period, outperforming the Zacks Computer – Software industry and the Zacks Computer and Technology sector’s growth of 18.7% and 18.8%, respectively.

MSFT’s YTD Price Performance

From a valuation standpoint, Microsoft trades at a premium with a forward 12-month Price/Sales ratio of 11.45X compared with the industry’s 8.55X. MSFT has a Value Score of D.

MSFT’s Valuation

The Zacks Consensus Estimate for MSFT’s fiscal 2026 earnings is pegged at $15.35 per share, reflecting upward revisions of 3 cents over the past 30 days. The estimate indicates 12.54% 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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