Microsoft FY26 Annual Report: Record Profits, a $678 Billion Backlog, and the Cap Ex Question

Exponential Learning · Oct 22, 2026 · 21m

Microsoft's fiscal 2026 annual report, summarized: revenue $331.8B (+18%), operating income $155.2B (+21%), Azure past $100B (+41%), Microsoft 365 Copilot past 30 million paid seats — and commercial remaining performance obligation up 84% to $678B, more than two years of revenue already contracted. Set against that: $115.9B of cap ex, Microsoft Cloud gross margin down to 66%, free cash flow down despite record operating cash flow, and a stock that fell roughly 24% during the year. We walk Nadella's shareholder letter (the frontier ecosystem and the cost-to-outcome frontier), the segment…