Microsoft's 10-year depreciation extension shifts $175 billion in finance leases to operating leases, with CFO Amy Hood saying cash spending plans are unchanged.
Alpha Score of 73 reflects strong overall profile with strong momentum, strong value, strong quality, moderate sentiment.
Microsoft reported strong growth in its cloud and AI businesses for the quarter ended June 30. The company also introduced an accounting change that will shift how its data center buildout appears on the capital expenditure line.
Revenue hit $90 billion in the three months through June, up 18% from a year earlier. Intelligent Cloud brought in $39.3 billion, a 32% increase. Productivity and Business Processes rose 14% to $37.8 billion. More Personal Computing slipped 4% to $12.9 billion. Azure annual revenue topped $100 billion for the first time, CEO Satya Nadella said in the earnings release.
The bigger story for investors, though, came from the company's finance chief. Amy Hood announced during the earnings call that Microsoft is extending the estimated useful life of its data centers and office buildings from 15 to 25 years, effective at the start of fiscal 2027. The change does not alter how much cash Microsoft spends on construction. It changes which leases count as capital expenditures.
"The greater impact is on capital expenditures as more of our future data center leases will shift from finance leases to operating leases," Hood said. Finance leases show up in the capex line; operating leases do not. She said the $175 billion capex expectation for calendar 2026 remained unchanged "outside of this useful life impact."
The shift matters because it makes the reported capex figure look smaller relative to the underlying investment. Microsoft spent $41 billion on capital expenditures in the fourth quarter alone, up 70% year over year. The company attributed the increase to customer demand for cloud and AI services and higher component prices. Hood said the $175 billion figure for calendar 2026 already includes the effect of the useful life change on future lease classification.
Nadella pointed to the spread of Microsoft 365 Copilot as evidence that customers are committing to the AI platform. The assistant now has more than 30 million paid seats. Net seat additions more than doubled quarter over quarter, and the number of customers with more than 5,000 seats rose seven times from a year earlier, he said. He cited NHS England as an example: the health service is rolling out Copilot to 505,000 clinicians and staff after a trial showed it saved employees an average of 43 minutes per day.
For fiscal 2027, Microsoft expects total revenue to grow at a double-digit percentage rate. The company's capital expenditure plans for the full year are expected to rise from the current year's level, according to the outlook presentation.
Microsoft shares traded at $390.54 late Wednesday, down 0.71% on the session. The stock carries an Alpha Score of 61 out of 100, a Moderate rating. Analysts said the accounting change gives Microsoft more flexibility to present its massive infrastructure build in a way that underscores the durability of the assets, without changing the cash trajectory. “It’s a signal that the company sees these data centers as long-lived assets, which is consistent with how hyperscalers think about the economics,” one sell-side analyst said.
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