Microsoft's Profit Margins Under Pressure from Azure Growth

Microsoft's stock has lost 4.5% over the trailing twelve months despite its reported profitability sitting at a multi-year peak.

The company's net margin is at 40%, its highest in at least five years, but gross margin is falling due to increased investment in AI infrastructure and a shift towards Azure sales.

In fiscal Q4 2026, Microsoft's gross margin was 67% and down year over year, while operating margin edged up to 45%.

The company expects Azure growth to accelerate in the first half of fiscal 2027, but this may come at a cost to gross margins, which could impact profitability.