MSFT Q4'26 Conference Call Notes

Three things from Microsoft's call, starting with: The sleeper: MAI models quietly slashing GPU costs by up to 89% while everyone obsesses over OpenAI drama

Three things that matter from Microsoft (MSFT) in its Q4’26 call:

1. The sleeper: MAI models quietly slashing GPU costs by up to 89% while everyone obsesses over OpenAI drama: Microsoft’s own MAI models are delivering 30% better performance per dollar than latest GPUs, with Dynamics 365 seeing 89% GPU cost reduction. ‘We are co-designing these models with our silicon... achieving higher code acceptance rates and 10% lower median token usage,’ Nadella revealed.

2. Azure hits $100B run rate growing 41% but the real story is efficiency gains monetizing instantly: Azure accelerated to 43% growth (guided 45% next quarter) not from new capacity but from engineering teams finding efficiency gains that translate to revenue within days due to extreme supply/demand imbalance.

3. Xbox impairment charges buried in discrete items while gaming ‘reset for long-term growth’: Management casually mentions ‘severance expense and impairment charges in Xbox’ without quantifying, then pivots to ‘expect to return the business to growth in fiscal 2027’ without explaining the turnaround catalyst.

Disclosure Quality: B- | Financial Quality: C

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Delta Sheet

• - Total Revenue: $82.9B (+18% YoY) → $90.0B (+18% YoY) (Growth rate held steady)

• ▲ EPS (adjusted): $4.27 (+21% YoY) → $4.74 (+23% YoY) (+200 bps acceleration)

• ▼ Operating Income: $38.5B (+20% YoY) → $40.7B (+18% YoY) (200 bps deceleration)

• ▼ Microsoft Cloud Revenue: $54.5B (+29% YoY) → $59.3B (+27% YoY) (200 bps deceleration)

• ▲ Azure Growth: 40% YoY → 43% YoY (+300 bps acceleration)

• ▲ M365 Copilot Seats: 20M seats → 30M seats (+50% QoQ growth)

• ▼ M365 Commercial Cloud Growth: 19% YoY → 14% YoY (16% adjusted) (500 bps deceleration)

• ▲ Operating Cash Flow: $46.7B (+26% YoY) → $55.4B (+30% YoY) (+400 bps acceleration)

• ▲ Free Cash Flow: $15.8B → $19.6B (+24% QoQ growth)

• ▼ Capital Expenditures: $31.9B → $35.8B cash paid (+12% QoQ increase)

• ▼ Xbox Revenue: -7% YoY → -10% YoY (300 bps worse deterioration)

• ▼ Commercial RPO: $627B (+99% YoY) → $678B (+84% YoY) (1500 bps deceleration)

• - Foundry Customers: 100,000 → 100,000 (No sequential growth mentioned)

• ▲ GitHub Copilot Users: Not disclosed → 50M users (New disclosure)

• ▲ Agent 365 Registered Agents: tens of millions → 40M agents (Specific number disclosed)