📈 Microsoft beats big, Azure hits $100B, shares up 7%

Last night handed capital allocators a lot to process at once: Microsoft delivered the kind of quarter that reminds you why the franchise holds, Meta reminded you that even great businesses can burn cash faster than they earn it, and the Fed’s three-way dissent sent bond yields surging to levels not seen since 2007 on the 30-year.

The thread running through all of it is the same one that’s defined 2026: AI spending is enormous, the cost of money is climbing, and the market is repricing both in real time.

Here’s what you need to know.

1. The Lead · Tech / Cloud

Microsoft (MSFT) posted fiscal Q4 revenue of $90.01 billion, well above the $87.62 billion LSEG consensus, with net income rising to $35.77 billion from $27.23 billion a year ago, according to CNBC. The real headline was Azure: growth accelerated to 43% year over year, topping the 40% consensus, and Azure revenue for the full fiscal year exceeded $100 billion for the first time, up 41%. Capital expenditures and finance leases for the quarter hit $41 billion, up 69%, and CFO Amy Hood guided for further capex growth in fiscal 2027, citing “demand signals across our portfolio.” Free cash flow fell 23% to $19.64 billion, a line that deserves attention, but Hood said the company expects to be free cash flow positive in fiscal 2027. Microsoft 365 Copilot surpassed 30 million paid seats, and GitHub Copilot reached 50 million users, per CEO Satya Nadella on the earnings call. Shares had given up 19% year to date heading into the print.

$100B+: Azure annual revenue for Microsoft’s fiscal 2026, the first time the cloud business has crossed that threshold, up 41% year over year according to CNBC.

The Bull & The Bear

• ▲ Bull: Azure’s acceleration to 43% growth at this scale, combined with commercial remaining performance obligations climbing to $678 billion, is not a fluke. The pipeline is real, the enterprise adoption of Copilot is broadening, and Hood’s guidance of 45% Azure growth next quarter is ahead of every Street estimate. This is a business gaining share while expanding at triple the rate of the broader economy.

• ▼ Bear: Free cash flow dropped 23% to $19.64 billion while capex soared 69% to $41 billion. The accounting shift that lengthens asset useful lives to 25 years and moves leases off the balance sheet will restate roughly $175 billion in capex, which changes how you model returns on invested capital. The OpenAI concentration risk is real: 45% of $625 billion in commercial obligations tied to a single partner is a structural vulnerability Deutsche Bank flagged explicitly last week.

The Bull Street Take

I have been patient on Microsoft all year and this quarter validates that patience. The Azure acceleration is the number that matters: at $100 billion in annual revenue growing 43%, it is not a rounding error on the income statement anymore, it is the business. The capex surge and the free cash flow dip are features of the investment cycle, not signs of deterioration. I want to own infrastructure providers during periods of uncertainty, and Microsoft is the most durable one on the board. The 7% after-hours move, on top of a stock that was already down 19% year to date, is the market finally squaring what it knew with what it feared.

Markets in Review · The Tape

Markets in Review

The major indexes closed sharply lower Wednesday after the Fed’s hawkish 9-3 hold sent bond yields soaring: the S&P 500 fell 1.5% to 7,316.37, the Dow dropped 2.18% (down 1,152 points) to 51,594.86, and the Nasdaq 100 shed 2% to 27,192.31, according to Business Insider.

The session’s damage was concentrated in the afternoon, after the Fed’s 2 p.m. statement landed with a three-way dissent pointing toward a rate hike. The 10-year Treasury yield jumped seven basis points, and the 30-year bond yield hit its highest level since 2007, per Business Insider, as fixed-income investors processed what a no-forward-guidance Fed with vocal hawks actually means for duration pricing.

Equities whipsawed before the close and sold off hard. The Dow’s 1,152-point drop reflected broad selling rather than sector-specific pain, with long-duration growth assets bearing the brunt. The Nasdaq’s 2% decline tracks with where rate sensitivity lives.

After the close, the picture shifted. Microsoft surged 7% in extended trading on a blowout Azure quarter, while Meta fell nearly 10% on a cash flow collapse and light guidance, and Starbucks jumped as much as 9% on a raised full-year outlook. The after-hours tape is telling a more nuanced story than the regular session did.

Go deeper

• Three FOMC dissenters (Hammack, Kashkari, Logan) voted for a hike, the most unified hawkish dissent since September 2016, shifting September from a probable hold to a live meeting.

• Microsoft (MSFT) surged 7% after hours on Azure growth accelerating to 43% and full-year Azure revenue crossing $100 billion for the first time, recovering from a 19% year-to-date decline heading into the print.

• Meta (META) fell nearly 10% after hours as free cash flow collapsed to $784 million from $8.55 billion a year ago, with Q3 guidance missing consensus at the midpoint.

What they’re saying

“The Fed appears to be running out of patience with above-target inflation, despite recent data coming in cold. The committee’s growing hawkish sentiment, shown by the three dissents against today’s hold, has also likely been exacerbated by the recent flare up in hostilities in the Middle East.” -- Kay Haigh, Global Head and CIO of Fixed Income and Liquidity Solutions, Goldman Sachs Asset Management

The Bull Street Take

The regular session sold off on the Fed, and the after-hours session partially reversed it on Microsoft: I am net cautious on duration and net constructive on cloud infrastructure, and Wednesday gave me no reason to change either position.

2. The Fed · Rates

The FOMC voted 9-3 to hold the federal funds rate at 3.5% to 3.75%, with Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan all dissenting in favor of a quarter-point hike, according to CNBC. It is the first three-way dissent pointing in one direction since September 2016. After the decision, the 10-year Treasury yield jumped seven basis points and the 30-year bond yield hit its highest level since 2007, per Business Insider. The S&P 500 closed down 1.5% at 7,316.37, the Dow fell 2.18% to 51,594.86, and the Nasdaq 100 dropped 2% to 27,192.31. Chair Kevin Warsh, sticking to his no-forward-guidance posture, offered no roadmap for September, and the post-meeting statement was nearly identical to June’s.

9-3: The FOMC vote to hold rates, with three dissenters preferring a hike, the most unified hawkish dissent since September 2016, per CNBC.

The Bull Street Take

Three regional presidents voting to hike is the bond market’s permission slip to reprice duration, and it used it. The 30-year at its highest since 2007 is the kind of level that changes the math on long-duration assets across the board. I am watching the September meeting as a live hike, not a hold.

3. Earnings · Tech / Social

Meta (META) beat on Q2 revenue at $60.80 billion versus the $60.17 billion consensus, but Q3 guidance of $61-64 billion (midpoint $62.5 billion) missed the $63.15 billion analysts expected, according to CNBC. The bigger shock: free cash flow cratered to $784 million from $8.55 billion a year ago as the company poured capital into AI infrastructure. Meta narrowed its full-year capex guidance to $130-145 billion. Reality Labs posted a $4.6 billion operating loss on just $431 million in sales. Shares were down 11% for 2026 heading into the print and fell nearly 10% after hours.

$784M: Meta’s Q2 free cash flow, down from $8.55 billion in the same quarter a year ago, per CNBC.

The Bull Street Take

The free cash flow collapse is the story here, not the revenue miss. A business spending at this rate needs the monetization to come fast. Zuckerberg’s comment that Meta is “getting a lot of offers for compute at a significant premium” over cost is interesting, but it is not a business yet.

4. Earnings · Consumer

Starbucks (SBUX) posted fiscal Q3 adjusted EPS of 85 cents versus 66 cents expected, with revenue of $9.32 billion topping the $9.16 billion consensus, and same-store sales rising 7.9% against a 6% estimate, per CNBC. The company raised its full-year adjusted EPS outlook to $2.55-$2.65 from $2.25-$2.45 and now expects global same-store sales to rise nearly 6%. North American same-store sales climbed 8.1%, with traffic up 4.5% and average ticket up 3.5%. CEO Brian Niccol’s “Back to Starbucks” turnaround is four straight quarters in, and the numbers are doing the talking.

The Bull Street Take

Niccol’s operational reset is working faster than the skeptics expected. Four consecutive comp quarters of growth at this traffic level tells me the customer is back. At a still-depressed valuation, this is the kind of consumer franchise I want exposure to heading into a higher-rate environment.

5. Earnings · Semiconductors

Qualcomm (QCOM) matched Q3 estimates with adjusted EPS of $2.21 on revenue of $9.95 billion, but guided current-quarter EPS to $2.05-$2.25 against the $2.36 consensus, citing a broad-based memory crunch across wafer fabrication, packaging, and other materials, according to CNBC. CEO Cristiano Amon announced price increases across all chips starting September 1 to recover higher input costs. Handset chip sales fell 20% annually to $5.1 billion, while automotive was a bright spot at $1.59 billion, on pace for the company’s $10 billion automotive revenue target by 2029.

The Bull Street Take

Qualcomm passing costs through is the right move operationally, but it puts more pressure on already-stressed smartphone consumers. The automotive pivot is the long-term thesis here, and the BMW cockpit chip deal announced Wednesday is a proof point I’ll keep tracking.

+ Also on the Tape

• Retail / Consumer: Chipotle (CMG) raised its full-year same-store sales forecast to low-single-digit growth from flat, beating Q2 estimates, but warned the U.S. cyclospora outbreak cut about 2 percentage points from late-July sales, per CNBC.

• Fed / Policy: Chair Kevin Warsh will give the keynote at the Jackson Hole Economic Symposium in August, where he says he will address “big questions” on productivity, demographics, and the global economy, per Business Insider.

• Consumer / China: Nike’s China revenue has fallen 30% since its 2021 peak as the “China Chic” domestic brand movement accelerates, with sales declining for eight straight quarters and annual revenue hitting an eight-year low, per CNBC.

• Deals: Meta and BlackRock announced a $14 billion data center joint venture in El Paso, Texas, weeks after Meta disclosed its Louisiana Hyperion project will top $50 billion, per CNBC.

• Semiconductors: Qualcomm completed its acquisition of Modular, a software company building AI programming technology, and plans to unveil its AI software platform at a conference in August, per CNBC.

The Last Word

The market’s job is to find the price where everyone is equally uncomfortable. On a day like Wednesday, it did its job.

Bull Street is for informational purposes only. Nothing here is financial advice. Always do your own research.