Microsoft Corporation (MSFT)

“We expect CapEx spend to increase to over $40 billion as we continue to bring more capacity online.”

“We expect our adjusted Q4 effective tax rate to be approximately 19%.”

“Excluding any impact from our investments in OpenAI, other income and expense is expected to be roughly negative $100 million as interest income will be more than offset by interest expense, which includes the interest payments related to data center finance leases.”

“Even as we invested through the year in additional capacity to serve the growing AI platform, apps, and services demand, and inclusive of these one-time costs, we expect full-year FY '26 operating margins to be up about one point year over year.”

“Therefore, we expect COGS of $29.4 to $29.6 billion or growth of 22% to 23%, including roughly $350 million from the retirement program, and operating expense of $19.3 to $19.4 billion or growth of approximately 7%, including roughly $550 million from the retirement program.”

“Therefore, at the total company level, revenue should be between $86.7 and $87.8 billion or growth of 13% to 15%, with accelerating commercial growth partially offset by our consumer business.”

“Hardware revenue should decline year over year.”

“In Xbox content and services, we expect revenue to decline in the low teens, reflecting a prior-year comparable that benefited from strong first-party content as well as the recent price changes for Xbox Game Pass as we focus on delivering more value to gamers.”

“Search advertising revenue ex-TAC growth should be in the high single digits driven by revenue per search and volume with continued share gains across Bing and Edge.”

“Windows OEM revenue should decline in the high teens with roughly six points of impact from a prior-year comparable that benefited from Windows 10 end of support, six points from inventory levels that we expect to come down for the quarter, and six points from a lower PC market as prices increase due to memory cost.”

“Therefore, we expect revenue to be $11.75 to $12.25 billion.”

“In our on-premise server business, we expect revenue to decline in the mid-single digits with ongoing customer shift to cloud offerings.”

“Broad and growing customer demand continues to exceed supply, and we continue to balance the incoming supply we can allocate here against our other high-ROI priorities: first-party applications, R&D, and end-of-life server replacement.”

“Therefore, we expect Q4 revenue growth to be between 39 and 40% in constant currency against a strong prior-year comparable that included accelerating growth.”

“For Intelligent Cloud, we expect revenue of $37.95 to $38.25 billion or growth of 27% to 28%.”

“In Dynamics 365, we expect revenue growth to be in the low double digits, down sequentially with impact from a strong prior-year comparable and the bookings trends noted earlier.”

“For LinkedIn, we expect revenue growth of approximately 10%.”

“Microsoft 365 Consumer cloud revenue growth should be in the low 20% range, down sequentially as we start to lap the benefit from last year's price increase.”

“Microsoft 365 Commercial products revenue should grow in the mid-single digits against a prior year that benefited from higher-than-expected Office 2024 transactional purchasing.”

“Building on the Copilot momentum we saw in Q3, we expect net paid seat adds to increase sequentially, which will drive continued ARPU growth.”

“On a reported basis, we expect revenue growth to be between 13 and 14% in constant currency.”

“In Microsoft 365 Commercial cloud on an adjusted basis, we expect revenue growth to be between 15 and 16 in constant currency, when normalized for the prior-year comparable that benefited from two points of in-period revenue recognition.”

“In Productivity and Business Processes, we expect revenue of $37.0 to $37.3 billion or growth of 12% to 13%.”

“Microsoft Cloud gross margin percentage should be roughly 64%, down year over year driven by continued investments in AI and increased GitHub Copilot usage.”

“In commercial bookings, when adjusted for the impact from OpenAI, we expect healthy growth on a growing expiry base with consistent execution in our core annuity sales motions against a significant prior-year comparable.”

“FX should increase COGS growth by roughly one point with no impact to operating expense growth.”

“Overall impact to total revenue is expected to be less than one point.”

“Based on current rates, we expect FX to increase revenue growth by roughly one point in Productivity and Business Processes and More Personal Computing, with no meaningful impact to Intelligent Cloud.”

“And we are expanding Cobalt supply significantly to meet this demand.”

“All up, we added another gigawatt of capacity this quarter and remain on track to double our overall footprint in just two years.”

“I would expect the pressure between first-party usage and being able to meet Azure demand will persist, as I said, but we are doing our best to get things in as quickly as we can—hence the CapEx number that we see in the second half of the year.”

“When we talk about some acceleration into what I would call the first half of FY '27—the second half of the calendar year—it means we are getting insights into our abilities to increasingly put pressure on efficiencies, speed up the deliveries into our data centers, and make that revenue-ready as quickly as we can.”

“Therefore, we expect another year of double-digit revenue and operating income growth in FY '27.”

“Operating expense growth will be in the mid- to high single digits, reflecting ongoing investments in R&D, inclusive of AI investment in compute, data, and talent to accelerate product innovation.”

“Therefore, we expect headcount will decrease year over year.”

“Despite these constraints, and the continued need to balance incoming supply, we expect Azure growth to show modest acceleration in the second half of the calendar year, compared with the first half.”

“Even with these additional investments and continued efforts to bring GPU, CPU, and storage capacity online faster, we expect to remain constrained at least through 2026.”

“We expect to invest roughly $190 billion in capital expenditures, which includes approximately $25 billion from the impact of higher component pricing.”

“For calendar year 2026, we expect the mix of short-lived assets to remain similar to Q3.”

“Tens of thousands of companies are already managing tens of millions of agents in Agent 365, and we expect this momentum to grow significantly as agents will increasingly need tools for identity, governance, security, and more.”

“The range of potential outcomes remains wider than normal. Therefore, Windows OEM and devices revenue should decline in the mid- to high teens.”

“As mentioned earlier, demand continues to exceed supply. Significantly accelerating growth rates in both Q3 and Q4.”

“Our customer demand continues to exceed our supply.”

“Based on current rates, we expect FX to increase Q4 total revenue and COGS growth by less than one point with no impact to operating expense growth.”

“And hardware revenue should decline year over year.”

“And we expect sequential growth moderation as the contribution from third-party partnerships continues to normalize.”

“And in Dynamics 365, we expect revenue growth to be in the high teens with continued growth across all workloads.”

“Microsoft 365 consumer cloud revenue growth should be in the mid to high 20% range driven by growth at ARPU as well as continued subscription volume.”

“As we work to close the gap between demand and supply, we expect the mix of short-lived assets to remain similar to Q2.”

“And we expect our adjusted Q3 effective tax rate to be approximately 19%.”

“The range of potential outcomes remains wider than normal, in part due to the potential impact on the PC market from increased memory pricing.”

“I have said we are now likely to be short capacity to serve the most important things we need to do, which is Azure, our first-party applications.”

“And hardware revenue should decline year-over-year.”

“Devices revenue should decline year-over-year.”

“In commercial bookings, we expect healthy growth in the core business on a low expiry base when adjusted for the OpenAI contracts in the prior year.”

“With accelerating demand and a growing RPO balance, we're increasing our spend on GPUs and CPUs. Therefore, total spend will increase sequentially, and we now expect the FY '26 growth rate to be higher than FY '25.”

“And we expect our Q2 effective tax rate to be approximately 19%.”

“We expect COGS of USD 26.35 billion to USD 26.55 billion or growth of 21% to 22%.”

“We will increase our total AI capacity by over 80% this year and roughly double our total data center footprint over the next 2 years, reflecting the demand signals we see.”

“Even with accelerating the spend and trying to pull leases in and get CPUs and GPUs in the system as quickly as we can, we are still seeing demand improve.”

“And lastly, we expect our Q1 effective tax rate to be between 19% and 20%.”

“Other income and expense is estimated to be negative $1.3 billion, primarily due to investments accounted for under the equity method.”

“Overall search and news advertising revenue growth should be in the low double digits.”

“Devices revenue should decline.”

“Even as we continue bringing more data center capacity online, we currently expect to remain capacity-constrained through the first half of our fiscal year.”

“And finally, we expect our FY '26 effective tax rate to be between 19% and 20%.”

“Due to the timing of delivery of additional capacity in H1, including large finance lease sites, we expect growth rates in H1 will be higher than in H2.”

“Capital expenditure growth, as we shared last quarter, will moderate compared to FY '25 with a greater mix of short-lived assets.”

“Next, building on the strong momentum we saw this past year, we expect to deliver another year of double-digit revenue and operating income growth in FY '26.”

“Assuming current rates remain stable, we expect FX to increase full year revenue growth and COGS growth by approximately 2 points and to increase operating expense growth by 1 point.”

“And now I'm saying I hope I'm in better shape by December.”

“We remain committed to investing against the strong demand signals we see for our services. So, as a reminder, our earlier comments on FY26 capital expenditures remain unchanged.”

“H2 capex in total remains unchanged from our January H2 guidance.”

“Therefore, even with ongoing AI investments as we scale, we continue to expect full-year FY25 operating margins to be up slightly year over year.”

“Overall Search and news advertising revenue growth should be in the mid-teens.”

“Devices revenue should decline in the high teens.”

“We expect Windows OEM revenue to decline in the low to mid-single digits assuming OEM inventory levels come down thru the quarter as noted earlier, although the range of potential outcomes is wider than normal.”

“We expect Q4 capital expenditures to increase on a sequential basis.”

“Roughly 40% will be recognized in revenue in the next 12 months, up 17% year over year.”

“We have been short, power and space. And so as you see those investments land that we've made over the past three years, we get closer to that balance by the end of this year.”

“And finally, our FY25 full year effective tax rate should be between 18% and 19%.”

“For the full fiscal year, we continue to expect double-digit revenue and operating income growth as we focus on delivering efficiencies across both COGS and operating expense.”

“In FY26, we expect to continue investing against strong demand signals including customer contracted backlog we need to deliver against across the entirety of our Microsoft Cloud. However, the growth rate will be lower than FY25 and the mix of spend will begin to shift back to short-lived assets which are more correlated to revenue growth.”

“We expect quarterly spend in Q3 and Q4 to remain at similar levels as our Q2 spend.”

“Hardware revenue will decline year-over-year.”

“Search ex-TAC growth will be higher than overall Search and News advertising revenue growth, which we expect to be in the mid to high-single-digits.”

“Actual results may differ based on current tariff uncertainties. Devices revenue will decline.”

“We expect revenue from Windows OEM to be relatively flat year-over-year as our outlook assumes inventory levels will normalize.”

“As we shared in October, the contribution from our AI services will grow from increased AI capacity coming online.”

“We expect continued ARPU growth through E5 and M365 Copilot and we again expect some seat growth moderation given the size of the installed base.”

“15% of premium priced laptops in the US this holiday were Copilot+ PCs and we expect the majority of the PCs sold in the next several years to be Copilot+ PCs.”

“This will be higher than overall search and news advertising revenue growth, which we expect to be in the high single digits.”

“And in H2, we still expect Azure growth to accelerate from H1 as our capital investments create an increase in available AI capacity to serve more of the growing demand.”

“We expect the contribution from AI services to be similar to last quarter, given the continued capacity constraints as well as some capacity that shifted out of Q2.”

“We expect consumption growth to be stable compared to Q1, and we expect to add more sequential dollars to Azure than any other quarter in history.”

“For H2, we expect revenue growth to remain relatively stable compared to Q2.”

“We expect capital expenditures to increase on a sequential basis, given our cloud and AI demand signals.”

“Customer demand for our differentiated solutions should drive another quarter of strong growth.”

“And then as long as we continue to see that demand grow, you're right, the growth in CapEx will slow and the revenue growth will increase.”

“But I feel pretty good that going into the second half of even this fiscal year, that some of that supply/demand will match up.”

“We expect operating expense of US$15.2 billion to US$15.3 billion, including approximately $200 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition.”

“We expect COGS between US$19.95 billion to US$20.15 billion, including approximately $700 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition.”

“Hardware revenue will again decline year-over-year.”

“This will be higher than overall Search and news advertising revenue growth, which we expect to be in the low single digits.”

“In Devices, revenue growth should be in the low to mid-single digits.”

“In Windows commercial products and cloud services, customer demand for Microsoft 365 and our advanced security solutions should drive revenue growth in the mid-single digits.”

“Windows OEM revenue growth should be relatively flat, roughly in line with the PC market.”

“In More Personal Computing, we expect revenue to grow between 9% and 12% in constant currency, or US$14.9 billion to US$15.3 billion.”

“Growth in our per-user business will continue to moderate.”

“We expect the consumption trends from Q4 to continue through the first half of the year.”

“In our on-premises business, we expect revenue to decline in the mid to high-teens.”

“We expect Office 365 revenue growth to be approximately 14% in constant currency.”

“We expect capital expenditures to increase on a sequential basis given our cloud and AI demand, as well as existing AI capacity constraints.”

“And given our focused commitment to managing at the operating margin level, we still expect FY2025 operating margins to be down only about one point year-over-year.”

“Therefore, we expect FY2025 OpEx growth to be in the single digits.”

“To meet the growing demand signal for our AI and cloud products, we will scale our infrastructure investments with FY2025 capital expenditures expected to be higher than FY2024.”

“Next, we continue to expect double-digit revenue and operating income growth as we focus on delivering differentiated value for our customers.”

“Assuming current rates remain stable, we expect FX to have no meaningful impact to full-year revenue, COGS, or operating expense growth.”

“I do think it's important to really think about our planning cycles and we do talk about spending sequentially higher. And we look forward to being able to continue to build out the infrastructure needed to meet the demand.”

“we expect FY2025 capital expenditures to be higher than FY2024.”

“We expect operating expense of US$17.15 billion to US$17.25 billion, including approximately $300 million from purchase accounting, integration and transaction-related costs from the Activision acquisition.”

“We expect COGS between US$19.6 billion to US$19.8 billion, including approximately $700 million from purchase accounting, integration and transaction-related costs from the Activision acquisition.”

“This will be higher than overall search and news advertising revenue growth, which we expect to be relatively flat.”

“Growth will be driven by our Azure Consumption business and continued contribution from AI with some impact from the AI capacity availability noted earlier.”

“For both LinkedIn and Dynamics, the continued bookings growth moderation noted earlier is a headwind to Q4 revenue growth.”

“In our on-premises business, we expect revenue to decline in the mid to high teens.”

“We expect capital expenditures to increase materially on a sequential basis driven by cloud and AI infrastructure investments.”

“These expenditures over the course of the next year are dependent on demand signals and adoption of our services. So we will manage that signal through the year.”

“Hardware revenue will decline year-over-year.”

“And to your point on occasion, those are lower ARPU seats, but there are also -- there are new seats and so you see that in the seat count number. And as we get through and we've seen that come down a little bit quarter-over-quarter and we've guided for that really to happen again next quarter”

“I think looking forward, you'll tend to C&I guide toward it, accelerated capital expense to continue to be able to add capacity in the coming quarters, given what we see in terms of pipeline.”

“we expect full-year operating margins to be up 1 to 2 points year-over-year, even as AI capital investments drive COGS growth.”

“demand for our Microsoft Cloud continues to drive the growth in our outlook for H2.”

“For the full-year FY 2024, we expect Activision to be accretive to operating income, when excluding purchase accounting, integration and transaction-related cost.”

“We expect operating expenses of $15.8 billion to $15.9 billion, including approximately $300 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition.”

“We expect COGS between $18.6 billion to $18.8 billion, including approximately $700 million of amortization of acquired intangible assets from the Activision acquisition.”

“Our per-user business should see benefit from Microsoft 365 Suite momentum though we expect continued moderation in seat growth rates given the size of the installed base.”

“In Azure, we expect Q3 revenue growth in constant currency to remain stable to our stronger-than-expected Q2 results.”

“In our on-premise business, we expect revenue to decline in the low 20s.”

“We expect capital expenditures to increase materially on a sequential basis, driven by investments in our cloud and AI infrastructure and the flip of a delivery date from Q2 to Q3 from a third-party provider noted earlier.”

“And we look forward to bringing Copilot to hundreds of organizations in the coming months as part of the new early access program, so they can improve the productivity of their own, security operation centers and stop threats at machine speeds.”

“And with our Microsoft Cloud for sovereignty, which will become generally available by the end of the calendar year, we offer industry-leading data sovereignty and encryption controls, meeting the specific needs of public sector customers around the world.”

“I think that impact remains through the rest of the year, and my view is unchanged on that.”

“Therefore, as we add the net impact of Activision, inclusive of purchase accounting adjustments as well as integration and transaction-related expenses, we continue to expect full year operating margins to remain flat year-over-year.”

“We expect operating expense of $15.5 billion to $15.6 billion, including approximately $400 million from purchase accounting adjustments, integration and transaction-related cost from the Activision acquisition.”

“We expect COGS between $19.4 billion to $19.6 billion, including approximately $500 million of amortization of acquired intangible assets from the Activision acquisition.”

“Growth should be driven by volume strength, supported by Edge browser share gains and increasing Bing engagement, as we expect the advertising spend environment to be similar to Q1.”

“For H2, assuming the optimization and new workload trends continue and with the growing contribution from AI, we expect Azure revenue growth in constant currency to remain roughly stable compared to Q2.”

“Our per user business should continue to benefit from Microsoft 365 suite momentum, though we expect continued moderation in seat growth rates, given the size of the installed base.”

“Growth continues to be driven by Azure consumption business and we expect the trends from Q1 to continue into Q2.”

“In Azure, we expect revenue growth to be 26% to 27% in constant currency, with an increasing contribution from AI.”

“We expect capital expenditures to increase sequentially on a dollar basis, driven by investments in our cloud and AI infrastructure.”

“To support our Microsoft Cloud growth and demand for our AI platform, we will accelerate investment in our cloud infrastructure.”

“Then in the second half of the next fiscal year, we'll start getting some of the real revenue signal from it.”

“But we'll get back to I'll call the normal pace of new project starts and optimizations going forward, that we will cycle through, I think, in the next couple of quarters, what is the last catch-up optimization.”

“Going into the next couple of quarters, I think, it will come down.”

“And finally, as a reminder for Q1 cash flow, we expect to make a $2.7 billion cash tax payment related to the TCJA transition tax.”

“Together, total cost growth should be around 6%.”

“We expect COGS between USD 16.6 billion to USD 16.8 billion and operating expense of USD 13.5 billion to USD 13.6 billion.”

“Even with share gains in our hiring business, growth will continue to be impacted by the overall markets for recruiting and advertising, especially in the technology industry, where we have significant exposure.”

“In our on-premises business, we expect revenue to decline in the low 20s.”

“We expect capital expenditures to increase sequentially on a dollar basis, as noted earlier, driven by investments in our AI infrastructure.”

“Increased capital spend will drive higher COGS growth than in FY '23, and FY '24 operating expense growth will remain low as we prioritize our spend.”

“We expect capital expenditures to increase sequentially each quarter through the year as we scale to meet demand signals.”

“So for FY '24, the impact will be weighted towards H2.”

“Even with strong demand and a leadership position, growth from our AI services will be gradual as Azure AI scales and our copilots reach general availability dates.”

“At a total company level, revenue growth from our Commercial business will continue to be driven by the Microsoft Cloud and will again outpace the growth from our Consumer business.”

“The impact in H1 is expected to be greater than H2.”

“And so obviously, we will see share gains first, usage first, then GM, then OPInc, right, like a classic P&L flow.”

“Therefore, while the scaled CapEx investments will impact COGS growth, we expect FY '24 operating expense growth to remain low.”

“We will continue to invest in our cloud infrastructure, particularly AI-related spend as we scale with the growing demand, driven by customer transformation. And we expect the resulting revenue to grow over time.”

“As a reminder, for Q4 cash flow, we expect to make a $1.3 billion cash tax payment related to the R&D capitalization provision.”

“We expect our Q4 effective tax rate to be in line with our full year rate of approximately 19%.”

“We expect COGS to grow between 3% and 4% in constant currency or $16.8 billion to $17 billion and operating expense to grow approximately 2% in constant currency or $15.1 billion to $15.2 billion.”