Explained: Why Microsoft shares rallied 9% in extended trading after Q4 earnings despite AI worries

Microsoft shares sharply rallied nearly 9% in extended trading hours on Wednesday after the tech giant’s Q4 earnings beat expectations, despite global worries around hyperscalers increasing their already massive AI spending.

In post-market hours on Wednesday, Microsoft said it expects to keep generating cash through fiscal 2027 and provided a capital expenditure estimate below Wall Street expectations following an accounting change for data centre leases.

The company’s sales and growth forecast for the ongoing fiscal first quarter also beat expectations, while topping Wall Street estimates for quarterly cloud revenue growth in its fiscal fourth quarter, which ended on June 30, 2026.


Microsoft’s Azure cloud-computing business reported a 43% rise in revenue in the fiscal fourth quarter, compared with analysts' consensus estimate of 39.98%, according to Visible Alpha, as reported by Reuters.

Also read | Microsoft set for $190 billion market value swing after earnings results, options indicate

Microsoft's massive AI spending bets finally paying off?

Analysts took the earnings metrics as showing that Microsoft's massive AI spending bets were finally paying off, easing investor concerns. The company’s CEO Satya Nadella during a conference call with analysts said the tech giant, which once relied on OpenAI for core AI models to power products like its Copilot assistant, is now designing its own models alongside its own chips and reaping efficiency gains of up to 40%.

Nadella outlined a vision in which Microsoft and its customers would be free to pick and choose AI technologies based on their cost and performance needs. "That is really the enterprise design architecture ⁠that we are going ‌to evangelize. We ourselves are using it," he said. Microsoft's earnings report follows Google Cloud's blockbuster quarter, with the rival posting an 82% surge in cloud revenue last week, far ahead of market expectations.

Capital expenditures rose over 70% YoY to $41 billion during the April-June quarter, but fell slightly short of meeting market sentiment of $42.37 billion. Overall revenue for the quarter rose 18% YoY to $90 billion, beating estimates. Its per-share profit, excluding the impact from investments in OpenAI, was $4.74, beating expectations of $4.24.

Also read | Microsoft's AI bet pays off as Azure, Cloud growth beat expectations

This comes amid an overall caution around AI spending around the globe, leading to a massive selloff in South Korea’s Kospi following a skyrocketing rally earlier this year.

(With inputs from agencies)

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