Microsoft (MSFT) official guidance

We expect FY 2027 capital expenditures will grow year-over-year, given demand signals across our portfolio.

We expect CapEx spend will be over $50 billion, including the lease reclassification impact from the useful life update.

In commercial bookings, when adjusted for the impact from OpenAI, we expect healthy growth on a growing expiry base driven by strong execution across our core annuity sales motions.

We expect COGS of $29.6 billion-$29.8 billion, or growth of 23%-24%.

Finally, we expect our FY 2027 effective tax rate to be approximately 20%.

We expect our Q1 effective tax rate to be approximately 20%.

In addition, we expect to remain free cash flow positive in FY 2027.

Microsoft Cloud gross margin percentage should be relatively stable quarter-over-quarter.

Operating expenses should grow in the mid to high single digits, reflecting continued investment in R&D compute capacity, talent, and data.

Operating expense of $16.8 billion-$16.9 billion, or growth of 7%-8%, driven by continued investment in R&D compute capacity and talent.

At the company level, with strong commercial momentum, we continue to expect another fiscal year of double-digit revenue and operating income growth.

Even as we invest to meet growing demand, full fiscal year operating margins should be down less than a point.

Operating margins should be relatively flat year-over-year.

Excluding any impact from our investments in OpenAI, other income and expense is expected to be roughly negative $100 million, as interest income will be more than offset by interest expense, which includes the interest payments related to data center finance leases.

For Intelligent Cloud, we expect revenue of $40.95 billion-$41.25 billion or growth of 33%-34%.

In more personal computing, we expect revenue to be $12.2 billion-$12.7 billion as we continue to lap the strong prior year comparables noted earlier and navigate complex PC market dynamics impacted by component prices and inventory levels.

In productivity and business processes, we expect revenue of $36.7 billion-$37 billion or growth of 11%-12%.

Therefore, at the total company level, revenue should be between $89.85 billion and $90.95 billion, or growth of 16%-17%, with accelerating commercial growth partially offset by the impact from the PC market dynamics noted earlier.

In Dynamics 365, we expect revenue growth to be in the low teens, relatively stable quarter-over-quarter, driven by continued growth in ERP, although impacted by the bookings trends noted earlier.

Hardware revenue should decline year-over-year.

For LinkedIn, we expect revenue growth in the high single digits.

In M365 commercial cloud, we expect growth of approximately 16% in constant currency on an adjusted basis, which normalizes for the prior year comparable that benefited from one point of end-period revenue recognition or 15% on a reported basis.

First, some reminders. In both M365 commercial products and server products KPIs, we are lapping higher transactional purchasing from the timing of product launches and expect revenue from both to decline in the mid-single digits for the full fiscal year.

M365 commercial product revenue should grow in the mid-single digits, driven by the timing of long-duration M365 contracts, partially offset by the impact from the prior year comparable noted earlier.

M365 consumer cloud revenue should grow in the mid-teens, down sequentially, as we lap the benefit from last year's price increase.

First, some reminders. In both M365 commercial products and server products KPIs, we are lapping higher transactional purchasing from the timing of product launches and expect revenue from both to decline in the mid-single digits for the full fiscal year.

In our on-premises server business, we expect revenue to decline in the low to mid-single digits with ongoing customer shift to cloud offerings and the prior year comparable noted earlier.

Search advertising revenue ex-TAC growth should be in the mid-single digits, down sequentially, due to the impact of third-party partnerships.

As a result, we expect revenue to decline in the high teens for the fiscal year.

Windows OEM and devices revenue should decline in the low 20s, driven by the market dynamics noted earlier.

In Xbox content and services, we expect revenue to decline in the mid-single digits.

At the company level, with strong commercial momentum, we continue to expect another fiscal year of double-digit revenue and operating income growth.

In M365 commercial cloud, we expect growth of approximately 16% in constant currency on an adjusted basis, which normalizes for the prior year comparable that benefited from one point of end-period revenue recognition or 15% on a reported basis.

In Azure, we expect revenue growth of approximately 45% in constant currency, we remain focused on delivering efficiencies that help us bridge the gaps we see as customer demand continues to exceed supply.

For calendar year 2026, we expect to invest roughly $190 billion in capital expenditures, which includes approximately $25 billion from the impact of higher component pricing.

We expect CapEx spend to increase to over $40 billion as we continue to bring more capacity online.

In commercial bookings, when adjusted for the impact from OpenAI, we expect healthy growth on a growing expiry base with consistent execution in our core annuity sales motions against a significant prior year comparable.

Therefore, we expect COGS of $29.4 billion-$29.6 billion, or growth of 22%-23%, including roughly $350 million from the retirement program.

We expect our adjusted Q4 effective tax rate to be approximately 19%.

Microsoft Cloud gross margin percentage should be roughly 64%, down year-over-year, driven by continued investments in AI and increased GitHub Copilot usage.

First, we continue to evolve how we operate to increase our pace and agility, and therefore, we expect head count will decrease year-over-year.

Operating expense of $19.3 billion-$19.4 billion, or growth of approximately 7%, including roughly $550 million from the retirement program.

Even as we invested through the year in additional capacity to serve the growing AI platform, apps and services demand, and inclusive of these one-time costs, we expect full-year FY 2026 operating margins to be up about oone point year-over-year.

Excluding any impact from our investments in OpenAI, other income and expense is expected to be roughly -$100 million, as interest income will be more than offset by interest expense, which includes the interest payments related to data center finance leases.

Building on the Copilot momentum we saw in Q3, we expect net paid seat adds to increase sequentially, which will drive continued ARPU growth.

For Intelligent Cloud, we expect revenue of $37.95 billion-$38.25 billion or growth of 27%-28%.

Therefore, we expect revenue to be $11.75 billion-$12.25 billion.

In Productivity and Business Processes, we expect revenue of $37 billion-$37.3 billion or growth of 12%-13%.

Therefore, at the total company level, revenue should be between $86.7 billion and $87.8 billion, or growth of 13%-15%, with accelerating commercial growth partially offset by our consumer business.

Despite these constraints and the continued need to balance incoming supply, we expect Azure growth to show modest acceleration in the second half of the calendar year compared with the first half.

In Dynamics 365, we expect revenue growth to be in the low double digits, down sequentially, with impact from a strong prior year comparable and the bookings trends noted earlier.

Hardware revenue should decline year-over-year.

For LinkedIn, we expect revenue growth of approximately 10%.

M365 commercial products revenue should grow in the mid-single digits against a prior year that benefited from higher than expected Office 2024 transactional purchasing.

M365 consumer cloud revenue growth should be in the low 20% range, down sequentially as we start to lap the benefit from last year's price increase.

In our on-premise server business, we expect revenue to decline in the mid-single digits with ongoing customer shift to cloud offerings.

Search advertising revenue ex-TAC growth should be in the high single digits, driven by revenue per search and volume, with continued share gains across Bing and Edge.

Windows OEM revenue should decline in the high teens, with roughly six points of impact from a prior comparable that benefited from Windows 10 end of support, six points from inventory levels that we expect to come down through the quarter, and six points from a lower PC market as prices increase due to memory cost.

Therefore, Windows OEM and devices revenue should decline in the mid to high teens.

In Xbox content and services, we expect revenue to decline in the low teens%, reflecting a prior comparable that benefited from strong first-party content as well as the recent price changes for Xbox Game Pass as we focus on delivering more value to gamers.

In M365 commercial cloud, on an adjusted basis, we expect revenue growth to be between 15% and 16% in constant currency.

In Azure, we continue to focus on accelerating the delivery of capacity and increasing fleet efficiencies, and therefore, we expect Q4 revenue growth to be between 39% and 40% in constant currency against a strong prior year comparable that included accelerating growth.

On a reported basis, we expect revenue growth to be between 13% and 14% in constant currency.

Next, we expect capital expenditures to decrease on a sequential basis due to the normal variability from cloud infrastructure build-outs and the timing of delivery of finance leases.

In commercial bookings, we expect healthy growth in the core business on a growing ex-pre base when adjusted for the OpenAI contracts in the prior year.

We expect COGS of $26.65 billion-$26.85 billion, or growth of 22%-23%, and operating expense of $17.8 billion-$17.9 billion, or growth of 10%-11%, driven by continued investment in R&D, AI compute capacity, and talent against a low prior year comparable.

We expect our adjusted Q3 effective tax rate to be approximately 19%.

Microsoft Cloud gross margin percentage should be roughly 65%, down year-over-year, driven by continued investments in AI.

We expect COGS of $26.65 billion-$26.85 billion, or growth of 22%-23%, and operating expense of $17.8 billion-$17.9 billion, or growth of 10%-11%, driven by continued investment in R&D, AI compute capacity, and talent against a low prior year comparable.

Operating margins should be down slightly year-over-year.

Excluding any impact from our investments in OpenAI, other income and expense is expected to be roughly $700 million, driven by a fair market gain in our equity portfolio and interest income, partially offset by interest expense, which includes the interest payments related to data center finance leases.

For Intelligent Cloud, we expect revenue of $34.1 billion-$34.4 billion, or growth of 27%-29%.

In More Personal Computing, we expect revenue to be $12.3 billion-$12.8 billion.

In Productivity and Business Processes, we expect revenue of $34.25 billion-$34.55 billion, or growth of 14%-15%.

Starting with the total company, we expect revenue of $80.65 billion-$81.75 billion, or growth of 15%-17%, with continued strong growth across our commercial businesses, partially offset by our consumer businesses.

For LinkedIn, we expect revenue growth to be in the low double digits, and in Dynamics 365, we expect revenue growth to be in the high teens, with continued growth across all workloads.

And in Xbox content and services, we expect revenue to decline in the mid single digits against a prior year comparable that benefited from strong content performance, partially offset by growth in Xbox Game Pass, and hardware revenue should decline year-over-year.

For LinkedIn, we expect revenue growth to be in the low double digits, and in Dynamics 365, we expect revenue growth to be in the high teens, with continued growth across all workloads.

M365 Commercial Products revenue should decline in the low single digits, down sequentially, assuming Office 2024 transactional purchasing trends normalize.

M365 consumer cloud revenue growth should be in the mid- to high-20% range, driven by growth at ARPU, as well as continued subscription volume.

In our on-premises server business, we expect revenue to decline in the low single digits as growth rates normalize following the launch of SQL Server 2025.

Search and news advertising ex-TAC revenue growth should be in the high single digits.

Therefore, Windows OEM revenue should decline roughly 10%.

Windows OEM and devices revenue should decline in the low teens. Growth rates will be impacted as the benefit from Windows 10 end of support normalizes and as elevated inventory levels come down through the quarter.

And in Xbox content and services, we expect revenue to decline in the mid single digits against a prior year comparable that benefited from strong content performance, partially offset by growth in Xbox Game Pass, and hardware revenue should decline year-over-year.

In Azure, we expect Q3 revenue growth to be between 37% and 38% in constant currency against a prior year comparable that included significantly accelerating growth rates in both Q3 and Q4.

In M365 Commercial Cloud, we expect revenue growth to be between 13%-14% in constant currency, with continued stability in year-over-year growth rates on a large and expanding base.

Therefore, total spend will increase sequentially, and we now expect the FY 2026 growth rate to be higher than FY 2025.

In commercial bookings, we expect healthy growth in the core business on a low expiry base, when adjusted for the OpenAI contracts in the prior year.

We expect our Q2 effective tax rate to be approximately 19%.

Microsoft Cloud gross margin percentage should be roughly 66%, down year-over-year, driven by the continued investments in AI, as well as the mix shift to Azure.

Operating margins should be relatively flat year-over-year and down sequentially, aligned with historic seasonality.

On that basis, in Q2, other income and expense is estimated to be roughly $100 million, as interest income will more than offset interest expense.

For Intelligent Cloud, we expect revenue of $32.25 billion-$32.55 billion, or growth of 26%-27%.

In More Personal Computing, we expect revenue to be in the $13.95 billion-$14.45 billion.

In Productivity and Business Processes, we expect revenue of $33.3 billion-$33.6 billion, or growth of 13%-14%.

Starting with the total company, we expect revenue of $79.5 billion-$80.6 billion, or growth of 14%-16%.

Devices revenue should decline year-over-year.

In Dynamics 365, we expect revenue growth to be in the mid to high teens, with continued growth across all workloads.

Windows OEM and Devices revenue should decline in the mid-single digits.