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What has to happen in Intelligent Cloud

Model as of

This page changes Intelligent Cloud inside the complete MSFT model. Every other vertical, corporate programme and valuation assumption stays in the selected portfolio case.

MSFT forward model
Horizon
Consolidated fair value $1,094.32 all other verticals held in this portfolio case
Final-quarter revenue $166.20B 62% of company revenue
Explicit segment contribution $319.80B EBITDA less segment capex, before corporate items

Satya Nadella's version: Microsoft moves down the cost-to-outcome curve fast enough that AI infrastructure becomes a software business again, Azure keeps compounding past $100B, and Copilot's 30 million paid seats become a per-seat uplift across a Microsoft 365 base measured in hundreds of millions. Every line is lifted, because the claim is about the platform rather than one segment. What this case does NOT contain is any figure Microsoft has published: there is no seat count for Microsoft 365 Commercial, no Azure capacity, no multi-year target and no segment capex. The uplift here is expressed as a margin delta and a higher exit multiple, which is a judgement wearing the costume of a mechanism - and at 11x terminal revenue it is the exit multiple, not the operating assumptions, doing most of the work.

Intelligent Cloud

Basis quarter$39.31B
Final quarter$166.20B
Implied CAGR+33%
Final revenue mix62%

The largest segment for the first time this quarter, and the reason the capital expenditure line has doubled. $39.3B of revenue, up 32%, with Azure and other cloud services up 43% and Azure passing $100B of annual revenue for the first time. Server products, Enterprise Services and GitHub sit alongside it. The operating margin is 40.6% against Productivity's 57.9%, and the gap IS the AI build: this segment consumes most of the $35.8B Microsoft spent on property and equipment in a single quarter, and the depreciation on it lands here first.

Last four quarters
2025 Q3 $30.90B Reported
2025 Q4 $32.91B Reported
2026 Q1 $34.68B Reported
2026 Q2 $39.31B Estimated
Azure and other cloud servicesServer productsEnterprise and partner servicesGitHub
Sequential growth +6.0%/qtr decaying toward +2.5% 6% a quarter against 13% just delivered. Azure grew 43%; no base case should extrapolate that.
Intelligent Cloud

Latest: $166.20B (2031Q2E)

Period Value
2024Q3 $24.09B
2024Q4 $25.54B
2025Q1 $26.75B
2025Q2 $29.88B
2025Q3 $30.90B
2025Q4 $32.91B
2026Q1 $34.68B
2026Q2 $39.31B
2026Q3E $43.12B
2026Q4E $47.12B
2027Q1E $51.31B
2027Q2E $55.70B
2027Q3E $60.30B
2027Q4E $65.13B
2028Q1E $70.19B
2028Q2E $75.50B
2028Q3E $81.08B
2028Q4E $86.95B
2029Q1E $93.12B
2029Q2E $99.61B
2029Q3E $106.45B
2029Q4E $113.66B
2030Q1E $121.27B
2030Q2E $129.30B
2030Q3E $137.78B
2030Q4E $146.73B
2031Q1E $156.20B
2031Q2E $166.20B

Assumptions & reasoning

  • Azure passed $100B of revenue in fiscal 2026 and grew 43% in the quarter against a segment growing 32%, so the non-Azure parts of this segment - server products, Enterprise Services - are growing far more slowly and are being diluted out of it.
  • Microsoft gives no capacity, megawatt or utilisation figure for Azure. It says demand exceeds supply and reports a growth rate, so this line is a growth driver by necessity rather than by choice.
  • This segment carries an assumed 70% of company capital expenditure, which is 63.8% of its own revenue in the basis quarter. Microsoft does not disclose capex by segment; the share is a judgement about where the datacenters are being built.
  • Commercial remaining performance obligation of $678B, up 84%, with a weighted average duration of 2.3 years and about 30% expected within twelve months, is mostly this segment. It is the strongest forward signal Microsoft publishes and it sits outside this model's drivers.
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