The Cloud Titans: Microsoft’s Copilot Backlog Challenges Amazon’s Data Center Re-Acceleration
Azure is accelerating, Copilot adoption is surging, and Microsoft's commercial backlog sits at $677 billion, yet the stock trails the S&P 500 by a wide margin. Something has to give, and the answer hinges on whether a $170 billion spending…
Microsoft (NASDAQ:MSFT | MSFT Price Prediction) trades at $531.01, and its latest quarter showed a large signed backlog changing into accelerating Azure revenue just as investors compare it with Amazon’s cloud revival.
Microsoft sells Azure cloud infrastructure, Microsoft 365 and Copilot software, plus Windows and Xbox. It just reported revenue of $92.28 billion, up 18.8%, and non-GAAP EPS of $4.89 against a $4.72 estimate. Azure grew 48%, and commercial remaining performance obligation reached $677 billion.
The competition story belongs to Amazon (NASDAQ:AMZN). AWS revenue grew 37% to $42.23 billion, its fastest pace in 18 quarters, on a backlog of $496 billion.
Azure Acceleration and Copilot Usage Point to More Upside
Azure growth has climbed every quarter, from 39% to 48%, and management guided to 49% to 50% in constant currency next quarter. Copilot daily users rose nearly 50% quarter over quarter, and customers with more than 50,000 seats increased over 8x year over year.
The CFO put the constraint simply: “We still have demand that exceeds supply.” At a forward P/E of 27, investors pay a reasonable multiple for a 46.78% operating margin. Jefferies’ Brent Thill said the stock is going higher from here.
A $170 Billion Spending Plan Could Squeeze Returns
Microsoft expects calendar-year capex of about $170 billion, with next quarter exceeding $50 billion. Fiscal 2026 free cash flow fell 6.5%, and roughly three-quarters of spending goes to short-lived CPUs and GPUs (the power, cooling, and networking vendors on the receiving end of that spend are the subject of a free report on seven AI infrastructure stocks that aren’t chipmakers). Microsoft Cloud gross margin slipped to 66%, with about 65% expected next quarter.
Backlog growth is cooling, slowing from 110% to 73%, with the total edging down from $678 billion. Windows OEM and Devices revenue fell 22%, while AWS posted a 39.4% operating margin.
Supply Delays Leave Room for Patience
Some third-party GPU contracts slipped into the second half of the fiscal year, and Microsoft gave no updated Copilot seat total. Management expects consumption billing outside coding to increase more slowly. Key questions are whether Azure hits its guidance and whether operating cash flow keeps pace with capex over the next two quarters.
Wall Street Sees 14% Upside as Shares Trail the S&P 500
Microsoft trades at $531.01 against an average target of $605.12, meaning about 14% upside. Targets are estimates and can change. Among 55 analysts:
- Strong Buy: 14
- Buy: 39
- Hold: 2
- Sell: 0
Shares are up 10.5% year to date versus 13.27% for the S&P 500, and down 1.23% over one year while the index gained 12.42%. Amazon trades at $254.60, with a $332.24 target meaning about 30% upside.
Backlog Conversion Puts Azure at the Center of Microsoft’s Outlook
At $531.01, Microsoft’s outlook rests on Azure.
The path higher runs through Azure. If growth reaches the guided 49% to 50% while new capacity comes online, the backlog keeps turning into reported sales. About 30% of that backlog should become revenue within 12 months.
The one-year lag versus the S&P 500 may reflect investor concern over capex. CNBC reported capex came in below expectations, which eases the spending concern. Amazon’s 2026 cash capex estimate of about $220 billion is larger, and its trailing free cash flow is negative at -$7.6 billion.
Azure missing guidance or cloud margins falling below the 65% target would weaken the outlook. Microsoft’s $677 billion commercial backlog gives investors a concrete measure of AI demand.
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Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
