Microsoft's AI-Fueled Rally Sparks Concern Over Stock's Sustainability

Microsoft's stock has surged over 25% since its earnings report on July 29. The company's fourth-quarter revenue was $90 billion, a year-over-year increase of 18%, with Azure revenue climbing 43%. Microsoft 365 Copilot reached 30 million paid seats, and the commercial remaining performance obligation grew sharply.

Investors are questioning whether the stock is due for a pullback. The company's Q4 2026 earnings report checked all the boxes that were concerning investors, including concerns over sustained hyperscaler spending, AI monetization, and SaaS-pocalypse created by AI.

The numbers behind the rally help explain why. Microsoft posted fiscal fourth-quarter revenue of $90 billion, up 18% year-over-year, with Azure revenue climbing 43%. Full fiscal 2026 revenue topped $331 billion. The company's commercial remaining performance obligation grew sharply.

Microsoft is getting a halo effect from other reports. For example, Chevron reported earnings on July 31 and highlighted Project Kilby, a 20-year take-or-pay power agreement with Microsoft covering 2.67 gigawatts of behind-the-meter capacity in West Texas. The project expects mid-teens returns on the investment.

Constellation Energy has its own long-term power arrangement tied to Microsoft, anchored by the restart of the Crane Clean Energy Center under a 20-year agreement to supply Microsoft's data centers once it returns to service.