Microsoft (NASDAQ: MSFT) delivered blowout financial results for the fourth quarter of its fiscal year 2026, ending June 30, with its cloud business leading the charge.
Microsoft Azure posted 43% year-over-year sales growth in the quarter, accelerating from the 40% growth recorded in the previous period.
CEO Satya Nadella has given investors several compelling reasons to believe the company’s cloud momentum will continue building over the medium term.
One of the most significant revelations from Nadella concerns Microsoft’s growing reliance on its own custom AI chips to power its artificial intelligence services.
According to Nadella, running MAI models on Microsoft’s custom chips yields 40% better performance per watt compared to alternative approaches.
That kind of efficiency gain translates directly into lower operating costs and potentially higher margins for Azure, which is already the company’s primary growth engine.
Microsoft offers AI services through its cloud business, including access to large language models developed by OpenAI, as well as its own internally developed MAI family of models.
The company has historically relied on external chip suppliers, including Nvidia (NASDAQ: NVDA), which offers powerful and versatile hardware for training and running AI models at scale.
As Microsoft leans more heavily into its proprietary silicon, the improved economics of running AI workloads in-house could sharpen its competitive edge against rival cloud providers.
The company closed fiscal year 2026 with a $678 billion cloud backlog, representing an 84% increase year over year, signaling robust future demand for its services.
With some analysts predicting AI infrastructure spending could hit $1 trillion within three years, Microsoft is positioned to capture a significant share of that expanding market.
Despite the strong results and positive forward indicators, Microsoft shares have lagged broader markets in 2026, rising approximately 5% year to date while the S&P 500 has climbed 12%.
That relative underperformance suggests meaningful upside potential remains for investors willing to take a longer view on the company’s AI and cloud trajectory.
The combination of accelerating Azure growth, a surging cloud backlog, and improving chip-driven margins makes Microsoft one of the more compelling large-cap technology stories heading into the second half of 2026.
