Microsoft today reported fourth-quarter results showing search advertising revenue growth slowing to 10% on a reported basis, even as the company's cloud business crossed a record threshold and a gain on its investment in Anthropic helped push net income up 31%.

Microsoft Corporation released its results for the fiscal fourth quarter and full fiscal year 2026 on July 29, 2026, covering the three months ended June 30, 2026. Total revenue for the quarter reached $90.0 billion, an increase of 18% year over year, or 17% in constant currency, according to the earnings release published on Microsoft's investor relations site. Operating income rose 18% to $40.6 billion. Net income reached $35.8 billion on a GAAP basis, up 31%, while diluted earnings per share came in at $4.81, an increase of 32%.

Those headline figures were shaped by two offsetting items tied to Microsoft's outside AI investments. A $3.2 billion gain from the company's investment in Anthropic added to other income and expense during the quarter, while the ongoing accounting treatment of Microsoft's investment in OpenAI reduced net income by $480 million and cut diluted earnings per share by $0.07. Stripped of the OpenAI impact, non-GAAP net income was $35.3 billion, up 22%, and non-GAAP diluted earnings per share was $4.74, up 23%.

For the advertising and marketing community that PPC Land serves, the quarter's most consequential detail sits inside the More Personal Computing segment, where Microsoft reports the performance of Bing, Copilot, Microsoft Edge, and its search advertising partnerships. Growth there decelerated for a second consecutive period, a trend that carries direct implications for anyone buying inventory across Microsoft's search and native advertising surfaces.

Search advertising growth slows again

Search advertising revenue, excluding traffic acquisition costs paid to publishers and content partners, increased 10% year over year in the fourth quarter, or 9% in constant currency. That represents a step down from the 12% ex-TAC growth Microsoft reported in the third quarter of fiscal 2026, which itself had marked a rebound from the 10% pace recorded in the second quarter. PPC Land's coverage of the third-quarter results had described that earlier reading as a possible stabilization after a sharp slowdown from the 21% growth rates Microsoft posted throughout fiscal 2025. The fourth-quarter figure suggests that stabilization did not hold.

Amy Hood, executive vice president and chief financial officer of Microsoft, told analysts on the earnings call that growth was driven by higher revenue per search and volume across Edge and Bing, though third-party partnerships weighed on the total. Nadella, in a separate section of his remarks, offered a more favorable framing of the underlying platforms, noting that Bing and Edge have gained audience share in search and advertising for five consecutive years.

Those two statements are not in tension so much as they describe different parts of the same picture. Microsoft's own search surfaces appear to be gaining audience share, according to Nadella's comments, while the revenue line PPC Land tracks each quarter reflects a mix increasingly shaped by third-party publisher and content-partner arrangements whose economics differ from Microsoft's owned inventory. That explanation for volatility has recurred across recent quarters, though the direction of the effect has not been constant: Microsoft's newly filed annual report for fiscal 2026 attributes full-year search advertising growth of 9%, or 12% ex-TAC, partly to a benefit from third-party partnerships over the twelve-month period, while the fourth quarter alone saw those same partnerships cited as a drag rather than a lift. That contrast illustrates how sensitive the reported growth rate is to the timing and terms of individual publisher deals.

The segment itself carries a new name in Microsoft's regulatory filings. The fiscal 2026 annual report describes it as "Search advertising (formerly Search and news advertising)," now grouping Bing, Copilot, Microsoft Edge, and third-party affiliates under that heading. The filing frames the business as one built to deliver relevant search, native, and display advertising to a global audience, with Copilot serving as a digital companion and the Edge browser and Bing search engine acting as the tools that drive user acquisition and engagement, while the underlying technology platform handles delivery of the advertising itself.

Three years of quarterly trend data

Full fiscal year search advertising revenue reached $15.176 billion in fiscal 2026, up from $13.878 billion in fiscal 2025 and $12.306 billion in fiscal 2024, according to the segment revenue table in Microsoft's 10-K filing. That three-year progression shows a business that has continued to expand in absolute terms even as its quarterly growth rate has swung considerably. PPC Land's report on the fiscal 2025 year-end results, published in July 2025, had described 21% ex-TAC growth as the highest quarterly rate the segment had produced in the prior three years. The fourth-quarter fiscal 2026 rate of 10% GAAP, or 9% constant currency, sits well below that peak.

Within the broader More Personal Computing segment, the search advertising trend was one bright spot in an otherwise mixed quarter. Total segment revenue was $12.9 billion, a decrease of 4%, or 5% in constant currency, driven by declines in Windows OEM and Devices revenue, down 7%, and XBOX content and services revenue, down 10%. Windows OEM and Devices weakness reflected lower PC market demand and a difficult comparison against the prior year, when Windows 10's end of support had pulled forward device purchases. XBOX hardware revenue fell 13%, or 14% in constant currency. Operating income for the segment declined 14%, or 15% in constant currency, partly due to severance expense and impairment charges tied to a Voluntary Retirement Program that Microsoft disclosed had a net positive effect on the quarter's results, since actual program costs came in lower than the company had projected in its April guidance.

Azure crosses $100 billion for the first time

While search advertising decelerated, the cloud side of Microsoft's business reached a milestone the company had been building toward for several quarters. Nadella told analysts that Azure revenue surpassed $100 billion for the first time during fiscal 2026, a threshold reached across the full fiscal year rather than in the fourth quarter alone. Azure and other cloud services revenue for the quarter grew 43% year over year, with no material difference between the GAAP and constant currency figures, an acceleration from the 40% growth Azure posted in the third quarter, according to prior PPC Land coverage.

Microsoft Cloud revenue, the broader measure spanning Microsoft 365 Commercial cloud, Azure, the commercial portion of LinkedIn, and Dynamics 365, reached $59.3 billion for the quarter, an increase of 27%. Hood called it a strong close to the fiscal year, highlighting the Cloud revenue figure directly in her remarks. Microsoft Cloud revenue for the full fiscal year reached $214.4 billion, up from $168.9 billion in fiscal 2025.

The Intelligent Cloud segment as a whole, which includes Azure alongside server products and enterprise services, generated $39.3 billion in quarterly revenue, up 32%, or 31% in constant currency. Operating income for the segment grew 31% to $16.0 billion. Cost of revenue within the segment increased 42%, which Microsoft attributed to continued investment in AI infrastructure needed to support customer demand and growing usage of GitHub Copilot. That expansion in infrastructure spending shows up clearly in the company's capital expenditure figures: capital expenditures, including assets acquired under finance leases, rose 70% to $41.0 billion for the quarter, with roughly two-thirds of that spending directed toward short-lived assets such as CPUs and GPUs that support Azure demand.

Commercial bookings and the scale of enterprise commitments

Commercial bookings, a forward-looking measure of contracted future business, grew 18% when excluding the effect of Azure-related commitments tied to OpenAI, according to the earnings materials. Including those OpenAI-linked Azure commitments, commercial bookings increased 10%, or 11% in constant currency. Commercial remaining performance obligation, which represents the total value of contracted revenue not yet recognized, reached $678 billion, an increase of 84% year over year, with Microsoft stating that all of the sequential growth came from commitments outside of frontier model companies. Excluding OpenAI, remaining performance obligation growth was 25%.

That $678 billion figure builds on a trend PPC Land has tracked across the fiscal year. The third-quarter report had put commercial remaining performance obligation at $627 billion, up 99% year over year, with roughly 25%, or about $157 billion, expected to be recognized within the following twelve months. By the fourth quarter, Microsoft said the portion of the obligation recognized within the next twelve months would represent roughly 30% of the total, up 37% year over year, while the remaining portion recognized beyond twelve months increased 112%. The weighted average duration of the obligation, including OpenAI-related commitments, stood at 2.3 years.

Anthropic gain and the shifting economics of AI partnerships

The $3.2 billion gain that lifted Microsoft's other income and expense line this quarter traces back to an investment Microsoft made alongside Nvidia in November 2025, when the two companies committed a combined $15 billion to Anthropic, pushing the AI research company's valuation to approximately $350 billion. As part of that same set of agreements, Anthropic committed to purchasing $30 billion of Azure compute capacity from Microsoft. The gain recorded this quarter reflects a subsequent increase in the carrying value of that equity stake rather than any new capital Microsoft has deployed.

The Anthropic gain arrived in the same quarter as a further evolution in Microsoft's relationship with OpenAI. On April 27, 2026, the two companies had announced an amended agreement, as PPC Land reported at the time, that dropped revenue-share payments between the companies, made Microsoft's intellectual property license non-exclusive, and allowed OpenAI to use cloud infrastructure beyond Azure. That amendment followed an earlier restructuring finalized in October 2025 that had extended Microsoft's intellectual property rights through 2032. Against that backdrop, Microsoft's discrete accounting treatment for its OpenAI investment reduced fourth-quarter net income by $480 million, a smaller negative swing than the $1.575 billion reduction recorded in the same quarter of fiscal 2025, when OpenAI-related losses had a larger drag on Microsoft's results.

Microsoft's non-GAAP adjustments strip out only the OpenAI investment impact, since that is the sole item covered by the company's disclosed non-GAAP definition. The Anthropic gain, by contrast, remains inside both the GAAP and non-GAAP net income figures.

Agentic infrastructure and the plumbing behind AI-driven commerce

Beyond the headline financial figures, Microsoft's earnings call included data points relevant to the infrastructure increasingly used to connect AI systems with commercial data, an area PPC Land has followed closely as Model Context Protocol implementations have spread across advertising. Nadella disclosed that Microsoft is now "exposing over 650,000 MCP actions across sales, finance, supply chain, HR, and customer service" through Dynamics 365, letting AI agents access business data under the same permissions, security guardrails, and audit trails as a human user. PPC Land's reporting in June 2026 on the expansion of Microsoft's Advertising MCP server had described a similar mechanism opening to pilot with read-only access, letting agencies query live campaign data from within Microsoft 365 Copilot, Claude, and ChatGPT, part of the broader shift of Model Context Protocol, originally developed by Anthropic, from a niche developer standard into foundational advertising infrastructure.

Nadella also discussed Web IQ, a set of grounding application programming interfaces Microsoft introduced this quarter that gives AI agents access to real-world intelligence drawn from the web. He said the tool is already in use by the most widely adopted AI assistants, naming ChatGPT specifically. Agent 365, a control plane extending enterprise governance and identity frameworks to AI agents, reached nearly 40 million registered agents within two months of launch, according to Nadella. Microsoft 365 Copilot surpassed 30 million paid seats during the quarter, with net seat additions more than doubling sequentially, while GitHub Copilot revenue accelerated more than 60% quarter over quarter following a June shift to usage-based billing.

LinkedIn and Dynamics growth moderates

Elsewhere in the Productivity and Business Processes segment, which houses Microsoft 365, LinkedIn, and Dynamics 365, revenue reached $37.8 billion for the quarter, an increase of 14%. Microsoft 365 Commercial cloud revenue increased 16% on an adjusted basis that normalizes for a prior-year comparison benefiting from two points of in-period revenue recognition, or 14% on a reported basis. LinkedIn revenue grew 12%, or 10% in constant currency, which Microsoft attributed primarily to growth in Marketing Solutions. Dynamics 365 revenue increased 13%, or 12% in constant currency, against what the company described as a strong prior-year comparison, with continued moderation in bookings.

Outlook points to further deceleration

Microsoft's guidance for the first quarter of fiscal 2027, covering the three months ending September 30, 2026, points toward continued softness in the search advertising line specifically. Hood told analysts to expect growth in the mid-single digits, down sequentially due to the impact of third-party partnerships, with underlying trends in revenue per search and search volume continuing to drive whatever growth does occur.

At the total company level, Microsoft guided first-quarter revenue to a range of $89.85 billion to $90.95 billion, representing growth of 16% to 17%. Within that guidance, Productivity and Business Processes revenue is expected between $36.7 billion and $37.0 billion, Intelligent Cloud between $40.95 billion and $41.25 billion, and More Personal Computing between $12.2 billion and $12.7 billion. Azure is expected to grow approximately 45% in constant currency, an acceleration from the current quarter's 43% pace, while Windows OEM and Devices revenue is expected to decline in the low twenties amid difficult comparisons and elevated component pricing.

Looking beyond the first quarter, Microsoft expects another fiscal year of double-digit revenue and operating income growth at the company level, alongside capital expenditures that grow year over year. The company also disclosed a change to its accounting for the estimated useful lives of datacenters and office buildings, extending them from 15 to 25 years effective at the start of fiscal 2027. Microsoft said the change would have a minimal effect on operating income but would shift a greater share of future datacenter leases from finance leases to operating leases, lowering the capital expenditure figure that includes finance leases. Calendar year 2026 capital expenditure expectations remain approximately $175 billion inclusive of that reclassification impact.

Why this matters for advertisers and publishers

For marketing professionals who plan budgets around Microsoft Advertising, Bing, and Copilot-integrated search experiences, the fourth-quarter slowdown extends a pattern of volatility that has now persisted across most of fiscal 2026, swinging up and down each quarter rather than settling into a steady trend. Microsoft's repeated citation of third-party partnerships as the swing factor, without further specificity in the public disclosures reviewed for this article, leaves advertisers with limited visibility into precisely which publisher relationships are driving the variance from one quarter to the next.

At the same time, the scale of Microsoft's broader AI and cloud buildout points toward infrastructure investments that will likely shape how AI-driven advertising and search experiences evolve over the coming fiscal year. Guidance for accelerating Azure growth in the first half of fiscal 2027, set against decelerating search advertising growth over the same period, suggests Microsoft's near-term financial narrative is increasingly a cloud and AI infrastructure story first, with search advertising functioning as a smaller and more variable contributor to the total.

Timeline

  • July 31, 2024 - Microsoft reports fiscal fourth-quarter 2024 results with search and news advertising revenue up 19% and Azure growth of 29%.
  • July 30, 2025 - Microsoft reports fiscal fourth-quarter and full-year 2025 results, with search advertising ex-TAC revenue up 21% for the year, the highest quarterly rate recorded in the prior three years.
  • October 28, 2025 - Microsoft and OpenAI finalize a restructured partnership extending Microsoft's intellectual property rights through 2032.
  • October 29, 2025 - Microsoft reports fiscal first-quarter 2026 results, with Microsoft Cloud revenue reaching $49.1 billion and commercial remaining performance obligation of $392 billion.
  • November 19, 2025 - Microsoft and Nvidia announce a combined $15 billion investment in Anthropic, with Microsoft contributing up to $5 billion, valuing Anthropic at approximately $350 billion and including a $30 billion Azure compute commitment from Anthropic.
  • January 28, 2026 - Microsoft reports fiscal second-quarter 2026 results, with search advertising ex-TAC growth slowing to 10%.
  • April 27, 2026 - Microsoft and OpenAI announce an amended agreement dropping revenue-share payments and making Microsoft's IP license non-exclusive.
  • April 29, 2026 - Microsoft reports fiscal third-quarter 2026 results, with search advertising ex-TAC growth rebounding to 12% and commercial remaining performance obligation reaching $627 billion.
  • June 2, 2026 - Microsoft introduces Web IQ, a grounding API suite connecting AI agents to live web data.
  • June 21, 2026 - Microsoft expands its Advertising MCP server to open pilot, enabling read-only access to live campaign data from AI environments including Microsoft 365 Copilot, Claude, and ChatGPT.
  • July 29, 2026 - Microsoft reports fiscal fourth-quarter and full-year 2026 results, with search advertising ex-TAC growth at 10% GAAP, or 9% constant currency, Azure surpassing $100 billion in annual revenue for the first time, and a $3.2 billion gain from its Anthropic investment contributing to a 31% increase in net income.

Summary

Who: Microsoft Corporation, led by chairman and chief executive officer Satya Nadella and chief financial officer Amy Hood, reported quarterly results affecting advertisers, publishers, enterprise customers, and developers using Bing, Microsoft Edge, Azure, and Microsoft 365 Copilot.

What: Microsoft reported fiscal fourth-quarter 2026 revenue of $90.0 billion, up 18%, with search advertising revenue excluding traffic acquisition costs growing 10% on a reported basis, or 9% in constant currency, a deceleration from the prior quarter. Azure and other cloud services revenue grew 43% for the quarter and surpassed $100 billion for the full fiscal year, while a $3.2 billion gain from Microsoft's investment in Anthropic contributed to net income increasing 31% to $35.8 billion.

When: The results cover the fiscal fourth quarter ended June 30, 2026, and were announced today, July 29, 2026.

Where: Microsoft is headquartered in Redmond, Washington, and the results apply to its global search advertising, cloud, and productivity businesses.

Why: The results matter to the marketing community because they mark a second consecutive quarter of search advertising deceleration on Microsoft's platforms, driven by what the company describes as the impact of third-party partnerships, even as Microsoft continues to expand the AI and agentic infrastructure, including Model Context Protocol actions, Web IQ, and Agent 365, that increasingly underpins how advertising and commercial data flow through AI systems. Microsoft's own guidance points to further search advertising deceleration in the first quarter of fiscal 2027, even as Azure growth is expected to accelerate over the same period.