A month has gone by since the last earnings report for Microsoft (MSFT Quick QuoteMSFT - Free Report) . Shares have added about 12% in that time frame, outperforming the S&P 500.

But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Microsoft due for a pullback? Well, first let's take a quick look at its most recent earnings report in order to get a better handle on the recent drivers for Microsoft Corporation before we dive into how investors and analysts have reacted as of late.

Microsoft Q4 Earnings Beat Estimates as Cloud and AI Drive Results

Microsoft reported fourth-quarter fiscal 2026 earnings of $4.74 per share on a non-GAAP basis (excluding OpenAI investment impacts), which increased 23% on a year-over-year basis (up 23% in constant currency). The figure beat the Zacks Consensus Estimate by 12.59%. On a GAAP basis, earnings per share were $4.81, up 32% year over year.

Revenues of $90 billion increased 18% year over year and beat the Zacks Consensus Estimate by 2.93%. At cc, revenues grew 17% year over year, reflecting continued strength in cloud and AI demand.

Results for the quarter included several discrete items relative to the guidance Microsoft provided on April 29, 2026, which together added 27 cents to earnings per share. These included a $3.2 billion gain tied to Microsoft's investment in Anthropic and lower-than-expected costs associated with the company's first-ever Voluntary Retirement Program, partially offset by severance expense and impairment charges in the Xbox business.

Microsoft Cloud revenues totaled $59.3 billion, up 27% year over year. Commercial remaining performance obligation reached $678 billion, up 84% year over year, with sequential growth driven largely by commitments from customers other than AI model developers.

MSFT's Q4 Segment Performance

Productivity & Business Processes

The Productivity & Business Processes segment generated $37.8 billion in revenues, which grew 14% year over year (14% in cc).

Microsoft 365 Commercial cloud revenues increased 14% on a reported basis, or 16% when adjusted for a prior-year comparable that had benefited from two points of in-period revenue recognition.

Microsoft 365 Consumer cloud revenues rose 24% (22% in cc). LinkedIn revenues increased 12% (10% in cc). Dynamics 365 revenues grew 13% (12% in cc).

Operating income for the segment rose to $21.9 billion from $19 billion a year earlier, representing an increase of about 15%.

Intelligent Cloud

The Intelligent Cloud segment contributed $39.3 billion in revenues, up 32% year over year (31% in cc).

Azure and other cloud services revenues surged 43% year over year, with growth accelerating from the prior quarter on continued demand across workloads.

Operating income for the segment increased to $16 billion from $12.1 billion a year earlier, up roughly 31%.

More Personal Computing

The More Personal Computing segment generated $12.9 billion in revenues, down 4% year over year (down 5% in cc), pressured by weaker hardware and gaming content revenues, partly offset by growth in search advertising.

Windows OEM and Devices revenues declined 7%. Xbox content and services revenues fell 10%, while Search advertising revenues, excluding traffic acquisition costs, rose 10% (9% in cc).

Operating income for the segment declined to $2.7 billion from $3.2 billion a year earlier, down about 14%, reflecting severance and impairment charges tied to the Xbox business.

MSFT's Notable Developments in Q4

Microsoft continued expanding its AI and cloud infrastructure during the quarter, adding new data center capacity across multiple continents to support growing demand.

The company disclosed plans to extend the estimated useful life of its data center and office buildings to 25 years from 15 years starting in fiscal 2027, a change that will affect future depreciation and lease accounting. More future data center capacity is also expected to be structured as operating leases rather than finance leases going forward.

Microsoft 365 Copilot paid seats surpassed 30 million, with net seat additions more than doubling on a sequential basis during the quarter.

On the leadership side, Microsoft named a LinkedIn executive to lead the professional networking business going forward. The company also introduced a new, more cost-efficient AI coding model during the quarter and lowered Xbox Game Pass subscription prices.

Management indicated it is resetting decisions across Xbox content, platform and operations, with an expectation for the gaming business to return to growth in fiscal 2027.

Microsoft also highlighted continued investment in AI-driven cybersecurity capabilities, describing a multi-model, agentic approach to threat detection and response that combines smaller, efficient models for the bulk of routine tasks with larger frontier models for more complex cases.

MSFT's Financial Performance in Q4

Gross margin reached $60.5 billion, up about 15% year over year.

Total operating expenses increased to $19.9 billion from $18.1 billion, up roughly 10%, driven by continued investment in research and development, AI talent and data. Research and development expenses were $10 billion, sales and marketing were $7.6 billion, and general and administrative expenses were $2.3 billion.

Operating income increased 18% year over year (18% in cc) to $40.6 billion. Net income reached $35.8 billion, up 31% on a GAAP basis; on a non-GAAP basis excluding OpenAI-related impacts, net income was $35.3 billion, up 22% (22% in cc).

Other income and expense, net, was a positive $3.4 billion in the quarter, compared with a negative $1.7 billion a year earlier, aided by net gains on investments and derivatives.

MSFT's Q4 Capital Expenditure and Infrastructure

Cash paid for additions to property and equipment was $35.8 billion in the quarter. Including finance leases, total capital expenditures and finance lease additions rose sharply year over year as the company continued to build out AI and cloud capacity.

Cash flow from operations totaled $55.4 billion, up about 30% year over year, driven by strong cloud billings and collections.

As of June 30, 2026, Microsoft maintained total cash, cash equivalents and short-term investments of $76.8 billion compared with $94.6 billion a year earlier. Long-term debt (including current portion) was $31.1 billion.

Microsoft returned $10.2 billion to shareholders through dividends and share repurchases during the fiscal fourth quarter.

MSFT's OpenAI Partnership Update

The fiscal fourth quarter reflected net gains from investments in OpenAI of $480 million, adding 7 cents to earnings per share. This compares with the fourth quarter of fiscal 2025, when net losses from OpenAI investments decreased net income and earnings per share by $1.575 billion and 21 cents, respectively.

These OpenAI-related impacts have historically created volatility in reported GAAP results, leading the company to provide non-GAAP measures excluding these effects to help investors better understand operational performance.

MSFT's Q1 2027 Outlook

For the first quarter of fiscal 2027, Microsoft expects total company revenues between $89.85 billion and $90.95 billion, suggesting growth of roughly 16% to 17%.

The Intelligent Cloud segment is expected to generate revenues between $40.95 billion and $41.25 billion. The Productivity and Business Processes segment is expected to generate revenues between $36.7 billion and $37.0 billion.

Foreign currency is expected to reduce total revenue growth by less than 1 point in the first quarter. Excluding any impact from OpenAI investments, other income and expense is expected to be roughly negative $100 million, as interest income is more than offset by interest expense, including payments tied to data center finance leases. The effective tax rate for the quarter is expected to be approximately 20%.

Capital expenditures are expected to exceed $50 billion in the first quarter of fiscal 2027, reflecting both continued infrastructure investment and the impact of the lease reclassification tied to the useful-life change for data centers and office buildings. For fiscal 2027, Microsoft expects capital expenditures of roughly $175 billion under the updated accounting treatment, while underlying investment levels for calendar 2026 remain unchanged from prior guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a upward trend in fresh estimates.

VGM Scores

Currently, Microsoft has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock has a score of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, Microsoft has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Microsoft is part of the Zacks Computer - Software industry. Over the past month, Pegasystems (PEGA Quick QuotePEGA - Free Report) , a stock from the same industry, has gained 19.5%. The company reported its results for the quarter ended June 2026 more than a month ago.

Pegasystems reported revenues of $420.72 million in the last reported quarter, representing a year-over-year change of +9.4%. EPS of $0.35 for the same period compares with $0.28 a year ago.

For the current quarter, Pegasystems is expected to post earnings of $0.48 per share, indicating a change of +60% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Pegasystems has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.