Microsoft (NASDAQ:MSFT) Confronts Cash-Conversion Challenge with $190 Billion AI Expansion Speeding Up

Microsoft is set to announce fiscal fourth-quarter earnings on Wednesday, July 29, following the close of regular trading. The company’s conference call starts at 2:30 p.m. Pacific and 5:30 p.m. Eastern. The same afternoon, the Federal Reserve wraps up its two-day policy meeting, increasing event risk. Investors are expected to focus on Azure’s growth, capital expenditures, and FY27 guidance as key factors likely to influence the share price. StockAnalysis

Microsoft projected revenue between $86.7 billion and $87.8 billion for the quarter, reflecting a 13%-15% increase. Consensus forecasts put revenue around $87.62 billion and earnings per share at $4.24. The revenue forecast is near the upper end of Microsoft’s guidance. Consensus numbers may vary across providers. In the previous quarter, Microsoft reported revenue of $82.9 billion and diluted earnings per share of $4.27. Microsoft

Azure revenue increased by 40% as reported and 39% in constant currency last quarter. For the June quarter, Microsoft forecasts constant-currency growth of 39% to 40%. Demand continues to outpace available capacity across regions and key workloads. The company added one gigawatt of infrastructure capacity during the period. Management anticipates that supply constraints will last through calendar 2026. Growth below 39% would fall short of Microsoft’s projected range. Microsoft

Q3 capital spending totaled $31.9 billion, with around two-thirds allocated to assets with shorter lifespans. Microsoft anticipates that Q4 capex will surpass $40 billion. The company also forecasts about $190 billion in expenditures for calendar 2026, a sum which factors in roughly $25 billion due to increased component costs. Operating cash flow stood at $46.7 billion, compared with $15.8 billion in free cash flow. Cash conversion is now in focus. Microsoft

Microsoft reported its AI business reached an annual revenue run rate topping $37 billion, up 123%. Microsoft 365 Copilot surpassed 20 million paid seats in Q3, with new paid-seat additions up 250% compared with a year ago. The number of customers with more than 50,000 seats jumped fourfold year over year. The company projects Q4 Microsoft 365 commercial-cloud growth of 15%-16% on an adjusted constant-currency basis. Accelerated adoption that maintains margins could further support the investment case. Microsoft

During Q3, the company recorded a gross margin of 68% and an operating margin of 46%. Microsoft Cloud’s gross margin was slightly reduced at 66%. Management forecasts Microsoft Cloud gross margin of approximately 64% in Q4. Quarterly cost projections factor in $900 million in voluntary-retirement charges. Despite these expenses, the company anticipates an increase of roughly one percentage point in full-year operating margin. The main challenges remain depreciation and increasing demand for AI. Microsoft

Management anticipates a further year of double-digit gains in both revenue and operating income. Operating expenses are projected to rise at a mid-to-high-single-digit rate annually. Total headcount is forecast to decrease compared to the previous year. Azure is expected to see a slight acceleration in growth during the second half of calendar 2026. Investors will look for clearer figures regarding capex, margins, and available capacity. This guidance could be more significant than the quarterly results. Microsoft

Microsoft ended Friday’s session at $381.70 and was trading at $385.82 in early premarket moves on Monday. That premarket figure was logged at 6:01 a.m. Eastern. Microsoft held a market capitalization near $2.84 trillion. The stock posted a trailing P/E ratio of 22.73 and a forward P/E of 20.62. Over the past 52 weeks, shares fell 24.55%. The stock stayed below its 50-day average of $399.18 and 200-day average of $436.12. StockAnalysis

Commercial remaining performance obligations totaled $627 billion, representing a 99% increase including OpenAI, and a 26% rise when excluding OpenAI, presenting a clearer picture of underlying demand. Approximately 25% is anticipated to turn into revenue within the next twelve months. The average contract duration was close to two-and-a-half years. OpenAI recorded a third-quarter investment loss of $14 million, down from $583 million in the previous year. Future impacts from accounting changes are still unclear. Microsoft

More Personal Computing revenue is forecast at $11.75 billion to $12.25 billion. Windows OEM revenue is projected to fall in the high teens percent. Management credits about six percentage points each to comparables, inventory, and market challenges. Xbox content and services revenue is expected to drop in the low teens percent. The midpoint for this segment’s guidance represents about 14% of overall company revenue, limiting but not eliminating its impact on margins. Microsoft