Microsoft's (MSFT) latest numbers say the quiet part out loud. AI is driving growth. It is also driving record spending. Your question is simple: do margins hold as scale kicks in, or do returns fade as the bill grows?
FY Q4 2025 Results (Quarter Ended June 30)
| Revenue | $76.4B (+18% YoY) |
| Operating income | $34.3B (+23%) |
| Intelligent Cloud revenue | $29.9B (+26%) |
| GitHub Copilot users | 20M+ (all-time) |
| FY2025 capex (total) | $88.7B |
| Q4 capex | $24.2B |
| Q1 FY2026 capex guidance | ~$30B |
Azure: AI Is the Growth Driver
Management tied more of Azure's growth to AI each quarter through fiscal 2025. In the March quarter, AI services added 16 percentage points to Azure's 33 percent growth. The mix shift toward AI workloads keeps accelerating consumption and encourages longer commitments. For investors, this improves visibility — but also raises the stakes if demand cools.
Copilot: Monetization, Not Just Novelty
GitHub Copilot crossed 20 million all-time users by late July. Microsoft also reported the largest quarter of Copilot seat adds since launch. Price remains firm at $30 per user per month for Microsoft 365 Copilot. Monetization, not novelty, drives ROI on the AI buildout. These details matter for your model.
The Bill: Historic Capex
Fiscal 2025 capex totaled about $88.7 billion. Fourth-quarter capex was $24.2 billion. Management guided to roughly $30 billion for the September quarter. The driver is supply — you build data centers and secure accelerators to meet backlog. This front-loads depreciation and power costs, setting a higher base for free cash flow to clear.
The spend shows up in new footprints. Microsoft announced over $30 billion of investment in the UK over four years. In the United States, it lifted planned spending in Wisconsin to more than $7 billion. These moves reduce supply bottlenecks and pull demand into Microsoft's regions.
How to Frame Margins
In the near term, gross margin mix tilts lower because AI services carry higher cost of revenue. Utilization and pricing improve as new capacity fills. Watch three signals:
- Azure growth relative to reported AI contribution
- Software pull-through from Copilot across Microsoft 365, Dynamics, and Security
- Opex discipline while capex peaks
FY2025 revenue was up 15 percent year over year with cost of revenue up 19 percent, driven by cloud scale. The spread should narrow as cohorts mature.
Risks
AI supply cycles cut both ways. If demand slows or power constraints persist, new capacity weighs on returns. Competitive pressure remains intense in models and AI infrastructure. A weaker macro backdrop would also delay Copilot seat expansion or limit usage intensity. Treat these as standing risks until margin expansion proves durable.
What to Watch Next
- Azure growth with explicit AI contribution — look for AI to add double-digit percentage points to Azure growth again
- Copilot monetization — seat adds, price integrity at $30, and reference wins in regulated industries
- Capex path — whether quarterly spend holds near $30B or starts to roll down as supply catches up (this drives the free cash flow inflection)
The setup is binary enough for a mega cap. If Microsoft keeps translating AI demand into Azure growth and Copilot ARPU, the stock earns its premium. If the spend outruns monetization, estimates face pressure. For now, the reported numbers support the bull case.