> ## Content Index > Fetch the complete content index at: https://www.thealphaagentic.com/llms.txt > Use this file to discover other available public pages before exploring further. # Microsoft Q3 2026 Results: Azure Grows 48%, Capex Falls Short of $50 Billion and Pending Leases Reach $364.6 Billion - URL: https://www.thealphaagentic.com/microsoft-q3-2026-earnings-results/ - Published: 2026-11-01T08:15:22.000Z - Updated: 2026-11-01T08:15:22.000Z - Description: Azure grew 48% in Q3 2026 under a new definition, above Microsoft's guide, while capex of $45.2 billion fell short of the over-$50 billion guide. The 10-Q shows $364.6 billion of leases that have not started, and the Q4 2026 guide asks for more of both. - Author: Eli Yang - Tags: News, AI, Datacenters, Deals & Earnings, Microsoft (MSFT) Microsoft (NASDAQ: MSFT) reported Q3 2026 results, its fiscal Q1 FY2027, for the quarter that ended Sept. 30, 2026, after the market closed on Oct. 28\. Azure grew 48%, three points above the guide, on a definition Microsoft changed this quarter. Capital spending including finance leases was $45.2 billion, CFO Amy Hood said on the call, below the "over $50 billion" Microsoft had guided. The Form 10-Q filed the same afternoon shows $364.6 billion of leases, mostly for datacenters, that have not started yet. Microsoft shares closed at $521.91 on Oct. 30, down 1.55% from $530.14 on Oct. 29\. Our [Hyperscaler Capex Tracker](https://www.thealphaagentic.com/hyperscaler-capex-tracker/) puts Microsoft's spending next to its peers. > Key numbers > > **Azure growth:** 48% in Q3 2026 under Microsoft's new Azure definition, against a guide of about 45% and 43% in Q2 2026, both on the old "Azure and other cloud services" basis. > > **Capex incl. finance leases:** $45.2 billion in Q3 2026, per CFO Amy Hood, against a guide of over $50 billion and $41.0 billion in Q2 2026\. Cash additions to property and equipment were $39.4 billion. > > **Leases not yet commenced:** $364.6 billion at the end of Q3 2026, up from $329.1 billion at the end of Q2 2026. > > **Commercial RPO:** $677 billion at the end of Q3 2026, against $678 billion at the end of Q2 2026, and up 73% from a year earlier. > > **Capex as a share of Microsoft Cloud revenue:** 70.7% in Q3 2026, by our math, against 69.1% in Q2 2026. > > **Q4 2026 guide:** Azure growth of 49% to 50% in constant currency and capex of over $50 billion. ## Graded Against Our Preview Microsoft beat four of the eight benchmarks in our preview for Q3 2026, matched one, came in below on both capex measures, and one could not be graded. Our [earnings preview](https://www.thealphaagentic.com/microsoft-q1-fy27-earnings-preview/) took most of its bars from Microsoft's July guidance. | Benchmark | Preview bar(Q3 2026) | Actual(Q3 2026) | Result | | ------------------------------- | ------------------------------ | ---------------------------------- | ------------------------- | | Azure growth, constant currency | About 45% (old definition) | 48% (new definition) | **Beat** by 3 points | | Capex incl. finance leases | Over $50B | $45.2B (CFO) | **Missed** by $4.8B | | Revenue | $89.85B to $90.95B | $92.3B | **Beat** the top by $1.3B | | Gross margin | About 67% (our math) | 67.8% | **Beat** | | Operating margin | Flat with 48.9% | 49.8% | **Beat**, slightly | | Windows OEM and Devices | Down low twenties % | Down 22% | **In line** | | Calendar 2026 capex | About $175B | About $170B | **Lowered** by $5B | | Commercial RPO | Growth with and without OpenAI | $677B, up 73%; no ex-OpenAI figure | **Not graded** | *Source: Microsoft's [Q3 2026 earnings release](https://www.microsoft.com/en-us/investor/earnings/fy-2027-q1/press-release-webcast?ref=thealphaagentic.com) and CFO remarks on the [Oct. 28 call](https://www.microsoft.com/en-us/investor/events/fy-2027/earnings-fy-2027-q1?ref=thealphaagentic.com). Margins are our math from the income statement. Azure's preview bar and actual use different definitions; see below.* The preview's Intelligent Cloud bar cannot be graded, because Microsoft no longer reports that segment. Cost of revenue of $29.72 billion was inside its guided range of $29.6 billion to $29.8 billion. Operating expenses of $16.64 billion were below their guided range of $16.8 billion to $16.9 billion. ## Azure: 48% Under a New Definition, With Third-Party Capacity Delayed Azure revenue rose 48% to $33.2 billion in Q3 2026, with no currency effect, according to Microsoft's release. **A new definition:** That 48% is for a line Microsoft now calls simply Azure. Its 10-Q defines it as consumption-based services across non-GPU workloads, including compute, data and analytics, storage, networking and security, and GPU workloads, including GPU infrastructure-as-a-service and Foundry. Through Q2 2026, Microsoft reported growth for "Azure and other cloud services," and the July guide of about 45% was given on that basis. The release recasts the year-ago figure to $22.4 billion under the new definition, so the 48% compares like with like. Microsoft did not restate growth for earlier quarters or reconcile the new line with the old one. Hood said Azure was "ahead of expectations," and we grade it against the 45% bar on that basis, but the two numbers are not strictly comparable. Hood said the growth came "even with the 3P capacity delays noted earlier," and was "driven by Foundry and improved CPU monetization." Foundry, Microsoft's platform for building AI apps and agents, more than tripled its revenue from a year earlier. She said engineering work found spare capacity across the GPU and CPU fleets that Microsoft could sell. On pricing, she said: "We had higher token pricing than we expected in the quarter." Microsoft Cloud revenue was $63.9 billion, up 30%. Its gross margin fell to 66% from 68% a year earlier, which Hood tied to the shift in mix toward Azure. ## Capex: $45.2 Billion, and a Smaller Calendar 2026 Total Microsoft spent $45.2 billion on capex including finance leases in Q3 2026, Hood said on the call. That is up 29.5% from $34.9 billion a year earlier, by our math. Hood tied the figure to delays: capex came in where it did "as some third-party capacity deliveries we expected in Q1 were delayed." About three quarters went to short-lived assets, mainly CPUs and GPUs, "including higher memory and storage costs." That share was about two-thirds in each of the prior three quarters. **How the capex numbers fit:** The $45.2 billion is Hood's figure; the release does not report capex including finance leases. Its cash flow statement shows $39.4 billion of additions to property and equipment, which Hood called cash paid for property and equipment. Hood put finance leases at $7.4 billion, while the 10-Q shows $5.2 billion of finance-lease assets obtained in the quarter. Microsoft did not reconcile these figures, and $39.4 billion plus $7.4 billion does not equal $45.2 billion. We use Hood's $45.2 billion because it is the measure Microsoft guided to. Operating cash flow rose 29% to $58.0 billion. Free cash flow was $18.6 billion, by our math, based on operating cash flow less additions to property and equipment in the release's cash flow statement, down from $25.7 billion a year earlier on the same basis. Hood gave the same $18.6 billion figure on the call; the release does not report free cash flow. Microsoft now expects about $170 billion of calendar 2026 capex. By our math, the first three quarters of 2026 add up to $118.1 billion. That leaves about $51.9 billion for Q4 2026, consistent with the new guide of over $50 billion. **Our math:** Capex including finance leases equaled 70.7% of Microsoft Cloud revenue in Q3 2026, against 69.1% in Q2 2026 and 71.1% a year earlier. Cloud revenue grew almost as fast as spending over the year, so the ratio moved little. | Metric | Year ago(Q3 2025) | Q4 2025 | Q1 2026 | Last quarter(Q2 2026) | This quarter(Q3 2026) | | ------------------------------------------ | ----------------- | ------- | ------- | --------------------- | --------------------- | | Capex incl. finance leases | $34.9B | $37.5B | $31.9B | $41.0B | $45.2B | | Microsoft Cloud revenue | $49.1B | $51.5B | $54.5B | $59.3B | $63.9B | | Capex / Microsoft Cloud revenue (our math) | 71.1% | 72.8% | 58.5% | 69.1% | 70.7% | | Commercial RPO, end of quarter | $392B | $625B | $627B | $678B | $677B | | Leases not yet commenced, end of quarter | $106.2B | $155.1B | $196.6B | $329.1B | $364.6B | *Source: Microsoft earnings releases, CFO call remarks (capex) and Forms 10-Q and 10-K (RPO, leases). Ratios are Alpha Agentic calculations; steps are in our sources file.* ![Two-panel chart of Microsoft Azure growth and capex including finance leases by calendar quarter, Q3 2025 to Q3 2026, with Q4 2026 guidance.](https://storage.ghost.io/c/b0/f1/b0f115e2-04db-4451-bca9-8288bfdeb3a5/content/images/2026/11/microsoft-q3-2026-earnings-results-capex-azure-v2-1.png) Microsoft Azure growth and capex including finance leases, Q3 2025 to Q3 2026, with Q4 2026 guidance. Azure was redefined in Q3 2026; earlier points use the old "Azure and other cloud services" line. Source: Microsoft earnings releases and calls. Chart: Alpha Agentic. ## What the 10-Q Says About Leases Microsoft had $364.6 billion of leases, "primarily for datacenters," that had not yet commenced as of Sept. 30, 2026, according to its [Form 10-Q](https://www.sec.gov/Archives/edgar/data/789019/000119312526436133/msft-20260930.htm?ref=thealphaagentic.com) filed Oct. 28. That is up $35.5 billion, or 10.8%, from $329.1 billion at June 30, 2026, per the [10-K](https://www.sec.gov/Archives/edgar/data/789019/000119312526323660/msft-20260630.htm?ref=thealphaagentic.com), by our math. A year earlier the figure was $106.2 billion, per the [10-Q for Q3 2025](https://www.sec.gov/Archives/edgar/data/789019/000119312525256321/msft-20250930.htm?ref=thealphaagentic.com). The leases start between July 2026 and June 2034, with terms of 1 to 20 years. The 10-Q adds that "some arrangements" are "subject to certain contractual conditions being met." Hood said Microsoft records a finance lease in capex only when the lease commences, so leases that have not started are not in the $45.2 billion. New operating lease assets rose to $6.5 billion in the quarter from $1.4 billion a year earlier. New finance lease assets fell to $5.2 billion from $9.1 billion. The weighted average remaining operating lease term rose to 8 years from 6 at June 30\. Microsoft's capex measure includes finance leases but not operating leases. Lease costs are already rising. Interest on finance lease liabilities rose to $769 million from $546 million a year earlier, per the 10-Q. Depreciation, amortization and other rose 44% to $11.7 billion, by our math from the cash flow statement. ## RPO, Bookings and OpenAI Microsoft's commercial remaining performance obligation, or RPO, was $677 billion at Sept. 30, 2026, down $1 billion, or 0.1%, from June 30, by our math. The balance is still up 73% from $392 billion a year earlier. Hood said a large Azure commitment signed in the quarter made the usual seasonal decline smaller. Commercial bookings fell 12% against a prior year with large Azure commitments. About 30% of RPO, or about $203 billion by our math, is expected to become revenue within 12 months. Hood said that portion is up 29%, while the part beyond 12 months rose 98%. She gave no RPO growth rate excluding OpenAI this time. The 10-Q puts a size on OpenAI. Microsoft recorded $10.0 billion of revenue from commercial arrangements with OpenAI in the quarter, including revenue-sharing payments. That is 10.8% of total revenue, by our math. For the 12 months ended June 30, 2026, the figure was $24.1 billion, per the 10-K. Anthropic does not appear in the release or the 10-Q. Its [S-1](https://www.sec.gov/Archives/edgar/data/2130357/000162828026067168/anthropicpbc-sx1.htm?ref=thealphaagentic.com) says its commitment to spend at least $44.9 billion with Microsoft runs from November 2026 to May 2033. ## What Changed: New Segments and the Q4 2026 Guide Microsoft reported two new segments for the first time in Q3 2026 and guided Azure to 49% to 50% growth in constant currency for Q4 2026. Agents and Infra, which the 10-Q says brings together Microsoft's applications and agents, its multi-model system and Azure infrastructure, had revenue of $76.8 billion, up 25%. Its operating income was $40.6 billion. Devices and Consumer had revenue of $15.5 billion, down 3%. Microsoft filed an [8-K](https://www.sec.gov/Archives/edgar/data/789019/000119312526436149/msft-20261028.htm?ref=thealphaagentic.com) on Oct. 28 recasting its annual results for the three years ended June 30, 2026, under the new structure. | Metric | Year ago(Q4 2025) | This quarter(Q3 2026) | Company guide(Q4 2026) | | ---------------------------- | ---------------------------- | --------------------- | ---------------------- | | Revenue | $81.3B | $92.3B | $96.0B to $97.1B | | Azure growth | 39% (38% cc), old definition | 48% | 49% to 50% cc | | Capex incl. finance leases | $37.5B | $45.2B | Over $50B | | Microsoft Cloud gross margin | 67% | 66% | Roughly 65% | *Source: Microsoft earnings releases and calls for Q4 2025 and Q3 2026\. The year-ago column is the year-ago period for the guided quarter. The Q4 2025 Azure figure is the former "Azure and other cloud services" line.* Hood said the Azure guide counts on further efficiency gains, because some third-party GPU-as-a-service contracts slipped to the first half of 2027\. "We need to find some more, which we're counting on," she said. She expects operating margins to be down slightly from a year earlier, with costs that include an estimate for an employee voluntary exit offer. Windows OEM and Devices revenue should decline in the mid-thirties percent. ## The Alpha Take Our preview argued that Azure growth near 45% and capex above $50 billion had to arrive together in Q3 2026\. They did not. Azure beat by three points, on a new definition, while capex fell $4.8 billion short. **What we got right:** We flagged that the useful-life change could push more datacenter leases into operating leases, which capex leaves out. The 10-Q is consistent with that, though it does not give a reason for the shift. New operating lease assets rose more than fourfold from a year earlier, and the leases not yet commenced add up to about eight times the quarter's capex. On these numbers, reported capex captures only part of what Microsoft has signed. **What we got wrong:** We treated "over $50 billion" as a floor that supply would meet. We did not flag third-party capacity, the GPU-as-a-service deals Microsoft rents, as a risk to that number. We also framed an Azure beat as a sign that new capacity arrived on time. Hood instead credited efficiency gains on existing hardware and higher token pricing. She said such efficiency gains are "not maybe as predictable" and that token pricing "can change." **The ratio that held:** Capex was 71.1% of Microsoft Cloud revenue a year ago and 70.7% in Q3 2026, by our math, while the dollar figure rose 29.5%. It dipped to 58.5% in Q1 2026, when capex fell to $31.9 billion. If it stays near 70% as delayed deliveries land, spending would be growing roughly in line with cloud revenue rather than ahead of it. **What Q4 2026 has to show:** The guide asks for both things at once: Azure at 49% to 50% and capex above $50 billion. If Azure hits the range while spending lands near the $51.9 billion implied by the $170 billion total, the efficiency gains would look repeatable. If Azure falls short while delayed capacity arrives, the Q3 2026 beat would look more like a one-quarter pricing and utilization gain. **The lease bill:** The $364.6 billion would start to show up in Microsoft's accounts as leases commence, and some of it still depends on contractual conditions. Finance lease interest and depreciation are already growing faster than revenue, by our math. Microsoft guides Microsoft Cloud gross margin down to roughly 65%, which Hood attributed to the mix shift toward Azure. The lease note in the next 10-Q will show how much more has started. This is analysis, not investment advice. ## What to Watch Microsoft's next report covers Q4 2026, the quarter ending Dec. 31, 2026; it has not announced a date. **Azure versus 49% to 50%:** Constant-currency growth in Q4 2026, and whether Hood still says demand exceeds supply. **Capex versus over $50 billion:** Whether the delayed third-party deliveries arrive, and whether the calendar 2026 total stays near $170 billion. **Leases not yet commenced:** The change from $364.6 billion in the next 10-Q, and the split between new operating and finance lease assets. **RPO:** Whether the $677 billion grows again, and whether Microsoft says how much comes from outside OpenAI. **Margins:** Microsoft Cloud gross margin against roughly 65%, and depreciation growth against revenue growth.