Microsoft Inc’s (ticker: MSFT) earnings release on the 29th of July this year marked the end of its full Fiscal Year (FY) 2026 ended in June. Microsoft rose about 8% after hours after beating on both revenue and EPS and this translated to around a 15% jump by the close of the next session (the 30th).

Within a year, Microsoft’s hyperscaler conviction had risen resolutely with some consequence for its segment mix. But what underscored the sentiment is remarkably different that from that which Meta faced – which reported on the same day.

Trend Analysis

For the recently concluded FY, the explosive growth in Productivity and Business Processes (PBC) – which has its business products tie into the company’s AI-adjacent Azure and cloud services – has mellowed in favour of growth in Intelligent Cloud – which also holds Azure and other cloud services in its core.

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Source: Company Information; Leverage Shares analysis

In the FY 2025 earnings call, the company had expressed confidence in the Intelligent Cloud segment being a driver of future performance and this was richly demonstrated – suggesting that the company’s guidance is firm locked into the forward picture.

More Personal Computing (MPC) – which centres around consumer spending – continued to show a tempered decline: it dropped by 1%, essentially holding previous FY’s bearish trend steady. Growth trends in Operating Income track the revenue quite efficiently, with the exception of MPC, which registered a positive growth despite the downtrend: a healthy sign for the company.

Consumer-facing product and services segments remain locked into past trends or even show a decline while corporate spends on product and services segments show the opposite over the past few years.

Source: Company Information; Leverage Shares analysis

When contextualized relative to revenue, net income and EPS, it becomes clear that corporate products and services – particularly from server demand – are driving earnings.

A drilldown into Microsoft to determine where revenue grew versus it gives additional flavour to the “consumer vs institution” dynamic: “Server”, “Microsoft 365 Commercial” and “Dynamics” show 31%, 16% and 15% YoY growth in revenue respectively while consumer-driven Xbox and “Windows & Devices” were down 7% and 1% respectively.

What stood out was the 24% increase in revenue from “Microsoft 365 Consumer:, which comprises of Personal and Family plans featuring premium versions of Word, Excel, PowerPoint, and Outlook as well as OneDrive cloud storage and Outlook email services. The last leans more corporate (which complicates the breakdown) but all of these products and services now have one common feature: recurring subscriptions, which didn’t exist in productivity applications like Word, Excel, et al until fairly recently. The ubiquity of its consumer applications has now been monetized into resilient cash streams which, nonetheless, pale in comparison to the demand for corporate computing and servers.

Reconciling all the numbers indicate that individual/retail consumer consumption is quietly haemorrhaging – bar Microsoft 365 Consumer, which turns stickiness into cash flow. Microsoft’s outlook for FY27 indicated that elevated inventory and higher device pricing could drive a high-teens decline in FY27 among “Windows and Devices” – which implies its 5% share could erode further in FY27.

When viewed as a whole – with “Products” delineated from the rest – it becomes clear that products no longer move the needle for Microsoft; its services.

Source: Company Information; Leverage Shares analysis

In other words, strong service growth drives income, earnings and determines costs.

Currently, the dominant services among corporates relate to AI (of course), with Azure being the load-bearing pillar at +43% growth YoY and crossing $100 billion in annual revenue. In its Q1 of FY26, bookings grew 112% almost entirely on OpenAI Azure commitments. In the most recent quarter, the same contract distorted the number in reverse: against that inflated base, bookings grew just 10% including OpenAI – but 18% excluding it. The weighted-average duration of 2.3 years in Remaining Performance Obligations (RPO) including OpenAI implies that ex-OpenAI book is shorter in duration as OpenAI’s commitment is longer-dated. The ex-OpenAI backlog, being shorter, converts to revenue sooner.

Nearly 90% of full-year Microsoft Cloud revenue came from customers that aren’t frontier model companies. Forward growth in potential revenue streams can be assessed as bookings made for Azure capacity for overall institutional usage. However, a multi-year commitment is only as good as the counterparty’s ability to fund it – so this estimation isn’t entirely risk-free or guaranteed.

The Restating of Capex Spends

Contrary to the sentiment shown in the stock amidst the backdrop of market scepticism over capex spends, spends on infrastructure continue apace. As a result, free cash flow fell 23% on $41 billion of quarterly capex and gross margin compressed to 67%. Management tweaked numbers slightly based on what can be considered a judgement call: from FY27, Microsoft will be extending the useful life of datacentres and office buildings from 15 to 25 years, which also shifts more future leases from finance to operating leases.

Since finance leases sit inside capex and operating leases do not, the capex expectation for the entire calendar year of 2026 (FY 26’s last two quarters and FY 27’s first two quarters) drops from about $190 billion to roughly $175 billion with no change in actual spending. This is a signal likely being misread by investors and potentially a big part of the post-release rise: the impact on operating income is minimal and is definitively not a sign that capex spend is easing off. Instead, it’s being reported slightly differently.

In Conclusion

Contrary to the investor base demanding a paring down on AI-relevant capex spends, Microsoft has indicated that capex spends will continue growing albeit with an interesting caveat: this will be based on “demand signals” – a far cry from the bullishness that most of the rest of the “Magnificent Seven” have expressed regarding AI, and potentially the most nuanced possible, given several quarters of overall AI bullishness. That alone might have been enough to accord a bullish flavour. But this bullishness doesn’t exist without the overall risk that an overhang – created by the plummeting or non-realization of resilient capacity demand – isn’t possible.

For now, that’s potentially the only cause for cheer in a market where nearly every tech company (and even some that aren’t explicitly tech) have found their telegraphed enthusiasm at odds with market sentiment.

It is something but not everything: second-order exposure to AI demand exists, for better or for worse.

Professional investors with access to European exchanges may consider the 3X Microsoft ETP (MSF3) and the -3x Short Microsoft ETP (MS3S) during upsides and downsides of the stock’s trajectory respectively.

Another method of buying into the stock’s trajectory to generate income is the Microsoft Options ETP (MSFY), which aims to generate monthly income by buying the company’s stock, selling up to 5% ‘out-of-the-money’ (OTM) weekly call options on the stock and paying a return on the premia collected.

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