The $678 Billion Backlog

Every figure in this article is drawn from Microsoft's earnings releases and SEC filings, or from reporting by CNBC, Bloomberg, Reuters, Al Jazeera and the trade press as attributed. Sections marked as analysis are identified as such.

In the first three months of 2026, Microsoft's shares fell roughly 25 per cent — the company's worst quarter since the end of 2008, and the worst of any of the market's giant technology names. The complaint was simple: Microsoft was spending historically unprecedented sums on artificial-intelligence infrastructure, and could not yet show returns to match. Plaintiffs' law firms filed securities suits. The stock sat near a one-year low into July.

Then, on July 29, Microsoft reported the quarter that flipped the argument.

The print

Revenue for the fiscal fourth quarter was $90.0 billion, up 18 per cent, with net income of $35.8 billion, up 31 per cent. Azure — the cloud business at the centre of the whole thesis — grew 43 per cent, an acceleration. For the full fiscal year, revenue reached $331.8 billion and net income $133.7 billion, and Azure crossed $100 billion in annual revenue for the first time.

The number that mattered most, though, was one most people had never watched before: commercial remaining performance obligations — contracted future revenue not yet delivered — reached $678 billion, up 84 per cent in a single year. That is roughly two years of Microsoft's entire current revenue, already signed for. The market's response was one of the largest single-day gains in the company's history.

Chief executive Satya Nadella's framing in the release: "We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results."

What the fear was about

The spending that frightened investors is genuinely without precedent. Microsoft's earnings materials put capital expenditure for fiscal 2026 at $115.9 billion, and the company guided to more than $50 billion per quarter going forward. Finance chief Amy Hood told investors that calendar-2026 spending expectations of roughly $175 billion were unchanged in substance — a headline reduction from about $190 billion reflecting only an accounting reclassification. "Outside of this useful life impact," she said on the July call, "our calendar year 2026 CapEx investment expectations remain unchanged."

Against that spending stood adoption numbers that were real but small relative to the base. Microsoft 365 Copilot passed 20 million paid seats in April and more than 30 million by July — growth of roughly 50 per cent in a quarter, but still single-digit penetration of the roughly 450 million commercial Microsoft 365 seats it could theoretically convert. The bear case, in one sentence: the company was spending like the demand was infinite while monetising a sliver of it. The July backlog print was the first number big enough to answer that sentence directly.

The OpenAI rewiring

Running underneath the year was a quieter story: Microsoft and its most important partner have been methodically unwinding their dependence on each other.

When OpenAI completed its restructuring into a public benefit corporation in October 2025, Microsoft's stake was set at roughly 27 per cent, valued at about $135 billion, and OpenAI committed to purchase an incremental $250 billion of Azure capacity. But Microsoft gave up its right of first refusal on new OpenAI cloud workloads; an independent expert panel, not OpenAI's board, now decides when "artificial general intelligence" has been reached; and Microsoft retained model IP rights through 2032 while becoming free to pursue AGI on its own.

Then, in April 2026, the financial cord was cut further: OpenAI's 20 per cent revenue share to Microsoft was capped at a total of $38 billion — a change CNBC and Bloomberg reported would save OpenAI on the order of $97 billion versus the old terms — Microsoft stopped paying its own revenue share to OpenAI, and OpenAI became free to sell its products on Amazon's and Google's clouds.

The result is a relationship unlike anything else in business: Microsoft is the largest outside owner of a company that is now free to route its growth through Microsoft's competitors — and that owes Microsoft a quarter of a trillion dollars in future cloud spending either way.

The constraint nobody priced

The strangest fact of Microsoft's year is that its binding constraint stopped being money, chips or demand. It is electricity and buildings. Nadella put it bluntly on a podcast in November: "You may actually have a bunch of chips sitting in inventory that I can't plug in. In fact, that is my problem today... It's not a supply issue of chips; it's the fact that I don't have warm shells to plug into."

Hood has told investors Microsoft has been short of space and power "for many quarters," with demand still increasing; reporting on the calls describes Microsoft slowing some of its own construction while paying billions per quarter to lease ready capacity from others. The largest software company on Earth is, operationally, in a race for concrete and grid connections.

Analysis: what the backlog does and doesn't prove

The following section is analysis, drawn from the reported facts above.

The $678 billion backlog is the best answer any AI-infrastructure spender has yet produced to the returns question: it converts "we believe demand exists" into "demand is contractually signed." It is why the same capital-spending plan that produced Microsoft's worst quarter since 2008 in March produced one of its best days ever in July.

But two caveats belong next to it. First, a backlog is a promise to spend, not spending — commitments of this scale have exit ramps, renegotiations and, as OpenAI's own April revenue-share reset demonstrated, a way of being rewritten when one side's leverage changes. Second, some unknown share of that $678 billion is OpenAI's own $250 billion Azure commitment — a purchase obligation from a company Microsoft part-owns. To that extent, the strongest number in Microsoft's results and the industry's circular-financing question are the same number viewed from different sides.

What Microsoft has that its peers in the AI buildout do not is the boring half of the story: $133.7 billion of annual net income from software the world already cannot stop using, funding the bet without borrowing against it. The wager may still be wrong about timing. It is not wrong about solvency — and in an arms race measured in gigawatts, being able to lose a year without losing the company may prove the decisive advantage.

Sources

• Microsoft Q4 FY2026 earnings release and webcast materials, July 29, 2026 (also filed as an 8-K exhibit with the SEC) — revenue $90.0B, net income $35.8B, Azure +43%, Microsoft Cloud $59.3B, commercial RPO $678B (+84%), FY2026 revenue $331.8B, net income $133.7B, Azure past $100B annually, $115.9B FY2026 capex, Nadella quote, Copilot 30M+ paid seats.
• Microsoft FY2026 Form 10-K, filed with the SEC — full-year figures.
• CFO Dive, July 30, 2026 — Q1 FY2027 capex guidance above $50B per quarter; Amy Hood quote on the calendar-2026 accounting reclassification (~$190B to ~$175B).
• Microsoft Official Blog and CNBC, October 28, 2025 — OpenAI restructuring: ~27% stake valued ~$135B, $250B incremental Azure commitment, loss of right of first refusal, IP rights through 2032, independent AGI panel.
• CNBC and Bloomberg, April 27, 2026 — OpenAI revenue share to Microsoft capped at $38B; reported ~$97B saving attributed to press estimates; OpenAI freed to sell on other clouds.
• Yahoo Finance quarterly recaps — Microsoft's ~25% decline in calendar Q1 2026, worst quarter since Q4 2008; GeekWire, July 2026 — stock near a one-year low before earnings. Securities suits are plaintiffs' allegations, not findings.
• Bloomberg, July 30, 2025, and Al Jazeera, July 31, 2025 — Microsoft becomes the second company to touch $4 trillion; CNBC, October 28, 2025 — first close above $4T.
• Nadella remarks on the BG2 podcast, reported by Yahoo Finance and Data Center Dynamics, early November 2025 — the "warm shells" power constraint; Hood remarks on space/power shortage from the FQ1 2026 call.
• CNBC, July 2, 2025, and ABC News/Yahoo Finance, July 2026 — layoff rounds of ~9,000 (2025) and ~4,800 (2026).

Figures are in U.S. dollars as reported. Microsoft's fiscal year ends June 30. The post-earnings share move is described directionally because reported magnitudes vary between outlets; the share of backlog attributable to OpenAI's commitment is not disclosed by Microsoft.