Microsoft in the AI stack

The business and what the filings show

Microsoft is both one of the largest buyers in the AI build-out and one of the clearest beneficiaries. It spent $136B on property and equipment over its latest four quarters, 69% of its $196B of operating cash flow, and it uses finance leases heavily on top of that. Its Microsoft Cloud revenue, which includes Azure, Microsoft 365 commercial and Dynamics, reached $229B, +28%.

Its relationship with OpenAI is the most visible loop in the stack. Microsoft owns roughly a quarter of OpenAI, has funded $11.9 billion of a $13.0 billion commitment, and reported $24.1 billion of revenue from commercial arrangements with OpenAI in fiscal 2026. OpenAI’s spending on Azure is part of why Microsoft’s remaining performance obligations reached $683B.

The question for Microsoft is the one for every buyer, asked of the strongest balance sheet: will the revenue from AI services grow into the capacity being built? Microsoft discloses $329 billion of data-center leases signed but not yet started, so the cost of the build-out will keep arriving on the income statement for years. The Intelligent Cloud segment’s operating margin is the place to see whether it is absorbing that cost.

How AI shows up in the numbers

AI shows up in Microsoft’s numbers in three places: Azure growth, where AI workloads now drive much of the increase; Microsoft 365, where AI features are sold as add-ons; and revenue from OpenAI itself. It also shows up as cost: capex, finance leases and depreciation, which is why the Intelligent Cloud segment’s margin is the best single read on whether AI is adding to Microsoft’s profits or only to its revenue.

Microsoft’s $136B of capital spending over the latest four quarters is 24% of the $566B the five largest buyers spent over their latest four quarters. The five together raised capex +81% on the four quarters before; Microsoft’s own revenue grew +18%.

How it talks about AI

In its latest earnings release, furnished to the SEC on October 28, 2026, Microsoft mentioned AI 0 times in 976 words of narrative text, about 0.0 mentions per 1,000 words. Of its 0 sentences about AI, 0 included a number: a revenue figure, a growth rate, a customer count or another measurable result. Across the 8 releases we read, back to January 29, 2025, AI mentions per 1,000 words went from 9.1 to 0.0.

Specific claims are easier to check against the numbers than general enthusiasm, which is why the share of AI sentences that carry a figure is worth watching alongside how often AI is mentioned. The sentences below are quoted from the release as published, after removing safe-harbor text and company boilerplate.

Source: earnings release (Form 8-K, Exhibit 99.1), October 28, 2026.

The trend in the numbers

Since the start of 2023, Microsoft’s largest quarter by revenue was Q3 2026 at $92.3B, and its highest gross margin was 71% in Q3 2023. The latest quarter set the revenue record for the period.

Quarter by quarter, Microsoft’s revenue grew +17% in Q4 2025, +18% in Q1 2026, +18% in Q2 2026, +19% in Q3 2026 on the same quarter a year earlier. The pace has been steady.

Gross margin in the latest quarter was 68%, against 69% a year earlier, little changed. Operating margin moved from 49% to 50% over the same span. Over the latest four quarters it turned 57% of its revenue into operating cash flow and spent 39% of revenue on capital projects, against 23% a year earlier.

Segments that matter for AI

The parts of Microsoft’s reported results most tied to the AI build-out, from the segment and product disclosures in its 10-K and 10-Q filings.

Where it sits in the stack

Microsoft sits in the AI clouds layer of the AI stack. It is paid by the software layer; its own spending flows to servers, networking, power & DCs, chips.

Among the 8 companies in this layer on our map, it ranks number 3 by revenue and number 6 of 7 by revenue growth. Its gross margin of 68% compares with 61% for the layer as a whole, a sign that it keeps more of each dollar than its neighbors. The full layer analysis is on the AI clouds page.

Latest four quarters for 10-Q filers; latest fiscal year for 20-F filers. Companies under $100 million of revenue are left out.

Against the 7 US-listed companies in its layer, Microsoft grew +18% over the latest year versus +20% for the layer combined, and converted 17% of revenue into free cash flow versus 3% for the layer. It is growing roughly in line with its layer.

What has to go right, and what could go wrong

What has to go right. Azure and the AI features in Microsoft 365 have to keep growing fast enough to absorb the depreciation and lease costs of the capacity being built, and OpenAI has to keep growing into the commitments behind Microsoft’s backlog.

What could go wrong. If cloud growth slows while the leases signed but not yet started come on stream, margins would compress with no change in demand. A weaker OpenAI would hit Microsoft through revenue, backlog and the value of its stake at once.

These describe the conditions the business depends on, as the filings show them. They are not a view on the stock.

Through the lens of Investing in AI

Rob May’s book offers six mental models for telling AI moats from traps. The one most useful for Microsoft’s layer is “Expect major market dislocations”: Most markets move slowly. AI does not. A single technical result can force the market to reprice an entire layer overnight. Assume fast repricings and sudden business-model breaks are normal, and position to benefit from shocks.

The question it asks of any company is: Which three to five assumptions have to hold for this investment to work? Applied to Microsoft, the filings on this page are the place to start: the margin trend shows whether it holds scarce value or passes it through, the customer and financing disclosures show who it depends on, and the commitments show what it has promised before the revenue arrives.

Customers and concentration

US companies must disclose any customer that accounts for 10% or more of revenue, and foreign filers usually describe their largest customers. Concentration matters because a company’s growth is only as durable as the handful of buyers behind it, and in the AI stack those buyers are often the same few companies.

• We have not found a customer-concentration statement in Microsoft’s latest filings that our reader can quote cleanly; see its filings on SEC EDGAR.

Financing links

Investments, guarantees, purchase commitments, warrants and power contracts between Microsoft and other companies, each quoted from the filing that discloses it. Numbers match the money-loop map.

• 1Microsoft → OpenAIEquity investment

  $11.9B funded of $13.0B committed

  “We have made total funding commitments of $13.0 billion related to our investment, of which $11.9 billion has been funded as of June 30, 2026.”

  Microsoft 10-K for the period ended June 30, 2026, filed July 29, 2026

• 2OpenAI → MicrosoftReported revenue

  $24.1B of Microsoft revenue in FY2026

  “For fiscal year 2026, we recorded revenue from commercial arrangements with OpenAI, inclusive of revenue-sharing payments, of $24.1 billion, and accounts receivable from OpenAI as of June 30, 2026 was $6.0 billion.”

  Microsoft 10-K for the period ended June 30, 2026, filed July 29, 2026

• 16Microsoft → CoreWeaveReported revenue

  67% of CoreWeave’s 2025 revenue

  “We recognized an aggregate of approximately 67% of our revenue from our top customer, Microsoft, for the year ended December 31, 2025.”

  CoreWeave 10-K for the period ended December 31, 2025, filed March 2, 2026

• 24Microsoft → ConstellationPower contract

  20-year PPA for a restarted nuclear plant

  “The restart is supported by a 20-year PPA with Microsoft to purchase the output generated from the renewed plant.”

  Constellation 10-Q for the period ended June 30, 2026, filed August 6, 2026

Commitments and backlog

• Backlog. Microsoft reports $683B of remaining performance obligations, 2.0 times its revenue over the latest four quarters: contracted revenue not yet earned.
• Server life. Microsoft depreciates its servers and network equipment over 2 to 6 years, after changes it disclosed: 4→6 years (July 2022). See the useful-life calculator.
• Leases signed, not yet started. “As of June 30, 2026, we had additional leases, primarily for datacenters, that had not yet commenced of $329.1 billion, with some arrangements subject to certain contractual conditions being met.” 10-K
• Net gains from investments in OpenAI. “Current year net income and diluted EPS were positively impacted by net gains from investments in OpenAI, which resulted in an increase in net income and diluted EPS of $5.0 billion and $0.67, respectively.” 10-K
• Share of backlog due within a year. “We expect to recognize approximately 30% of both our total company remaining performance obligation revenue and commercial remaining performance obligation revenue over the next 12 months and the remainder thereafter.” 10-Q

What to watch

Microsoft’s next quarterly report will cover the quarter ending around December 30, 2026. Large companies must file a 10-Q within 40 days of a quarter’s end and a 10-K within 60 days of the fiscal year’s end, so the new figures should arrive by about February 28, 2027 at the latest. This page, the layer pages and the next quarterly report all update from that filing.

• Capex plus finance leases each quarter, and capex guidance: cash capex alone understates how much Microsoft is committing.
• Microsoft Cloud growth and Intelligent Cloud operating margin, the clearest read on whether AI is adding to profits or only to revenue.
• Revenue from OpenAI and the gains or losses on the OpenAI stake, which together show how dependent the AI story is on one partner.
• Its place in the next quarterly AI Stack Report, which updates every company on the map from the new filings.

Figures from Microsoft’s SEC filings, latest period ended September 30, 2026. Other companies: all company pages.