Driven by strong growth in the Azure cloud and Copilot businesses, Microsoft (MSFT) delivered another standout quarterly earnings report, topping Wall Street expectations and reinforcing the company’s role as a leader in the AI infrastructure buildout.
Key Takeaways
- Microsoft delivered strong earnings exceeding analyst expectations with an EPS of $4.74 and $90 billion in revenue. This was driven by growth in its Azure cloud and Copilot businesses while maintaining disciplined capex spending.
- As hyperscaler peers like Meta and Alphabet faced pressure from compressed free cash flows and increased capital spending, Microsoft maintained its forward capex guidance, alleviating pressures about the company’s financial stability.
- Microsoft’s strong results have positively impacted the wider ETF landscape, fueling growth in major large-cap funds, as well as sector-specific tech ETFs and dividend-focused strategies.
Standout Earnings Performance
Microsoft has seen a double-digit boost following the report, reinforcing the company’s fundamental strength and calming investor concerns over elevated capex spending. The company posted EPS of $4.74 on revenue of $90 billion, reflecting growth of 30% and 18%, respectively, from the same period last year. These results beat analyst consensus estimates of EPS of $4.25 and revenue of $87.7 billion.
Beyond top-line growth, Microsoft delivered disciplined spending for the quarter and held forward capex guidance steady. The company announced it had spent $41 billion on capital expenditures during the quarter, coming in below Wall Street expectations of $42 billion, according to Yahoo Finance. Earlier in the year, Microsoft announced forward capex guidance of $190 billion. Management reiterated this guidance, explaining that the headline $175 billion number reported this quarter stems from an accounting correction in lease and depreciation schedules, rather than a pullback in AI infrastructure spending.
While hyperscaler counterparts such as Meta (META) and Alphabet Inc. (GOOGL) have faced declines following earnings as a result of compressed free cash flows and elevated forward capex guidance, Microsoft reported free cash flow for the quarter of $19.6 billion, exceeding analyst estimates of $13.44 billion, according to Visible Alpha Data. Meta’s free cash flow came in at $784 million, down from $8.55 billion a year earlier, while Alphabet reported free cash flow of -$5.86 billion, marking the first negative free cash flow for the company since going public 22 years ago, according to Moneywise reporting.
Earnings Momentum in Large-Cap ETFs
Microsoft’s strong quarterly report has sparked momentum in the broader ETF market. Large-cap growth ETFs such as the Invesco QQQ Trust Series I (QQQ) hold a heavy Microsoft allocation, with the stock representing 4.93% of the portfolio. Tracking the Nasdaq-100 Index, QQQ provides exposure to the 100 largest non-financial companies listed on the Nasdaq. The fund jumped 2.90% the day after the report and has returned 7.97% year to date with inflows of $5.84 billion over the same period.
The Vanguard Growth ETF (VUG) holds Microsoft at a 7.59% portfolio weight. This fund provides market-cap- weighted exposure to large-cap U.S. growth stocks by tracking the CRSP U.S. Large Cap Growth Index. VUG gained 2.29% the day after the earnings report and has returned 1.06% with inflows of $6.01 billion in 2026.
Microsoft is a 6.16% allocation in the Schwab U.S. Large-Cap Growth ETF (SCHG). Tracking the Dow Jones U.S. Large-Cap Growth Total Stock Market Total Return Index, the fund aims to provide low-cost exposure to large-cap U.S. equities that exhibit strong growth potential. SCHG gained 1.32% following the report and has returned 2.12% with inflows of $4.40 billion year to date.
Sector-Specific ETF Correlations
While broad large-cap ETFs offer diversified exposure across various sectors, sector-specific ETFs experience an even tighter correlation to Microsoft’s earnings performance. The State Street Technology Select Sector SPDR ETF (XLK) offers exposure to the information technology (IT) companies in the S&P 500 by tracking the S&P Technology Select Sector Index. Microsoft is currently an 8.50% weight in XLK, making it the fund’s third largest allocation behind Apple (AAPL) and Nvidia (NVDA). The fund has risen 4.45% since the report, bringing its year-to-date gain to 14.98% alongside $3.04 billion in net inflows.
Also targeting the information technology (IT) sector, the Vanguard Information Technology ETF (VGT) holds Microsoft at an 8.28% portfolio weight. VGT provides exposure to over 300 stocks in the IT industry by tracking the MSCI US IMI 25/50 Information Technology Index. The fund has risen 4.45% since the report and has gained $3.04 billion in new assets and climbed 14.98% year to date.
The iShares Expanded Tech-Software Sector ETF (IGV) holds Microsoft as the fund’s second largest allocation at 8.40%. The fund tracks the S&P North American Technology-Software Index, providing targeted exposure to North American equities in the software industry. IGV minimally gained 0.23% following the announcement and has lagged behind large-cap ETF counterparts returning -12.59% over the course of the year. Despite underperforming relative to the broader market, IGV has maintained strong inflows gaining $5.83 billion in new assets so far in 2026.
The Role of Microsoft in Dividend-Focused Funds
While growth and sector-specific ETFs capture the most upside from Microsoft’s earnings, the company’s influence extends into income-oriented dividend strategies. Microsoft held quarterly dividends flat at $0.91 per share in its latest earnings, aligning with its tradition of announcing dividend adjustments in September. Having increased its payout for 21 consecutive years since 2004, Microsoft remains a cornerstone holding in many dividend-focused funds.
The Vanguard Dividend Appreciation ETF (VIG) offers exposure to dividend paying large-cap companies that exhibit growth characteristics within the U.S. equity market. Tracking the S&P U.S. Dividend Growers Index, constituents are required to have 10 consecutive years of increased dividend payouts. VIG has gained 9.43% in 2026 and has received $419.81 million in inflows over the same period, with Microsoft currently sitting at 3.50% portfolio weight.
Taking a forward-looking approach to dividend growth, the WisdomTree US Quality Dividend Growth Fund (DGRW) targets companies with a high return on equity (ROE), return on assets (ROA), and earnings growth. Tracking the WisdomTree U.S. Quality Dividend Growth Index, companies are weighted based on their cash dividends with the fund notably excluding past dividend growth requirements for inclusion. DGRW has climbed 7.09% year to date, with Microsoft currently receiving a 6.02% portfolio allocation.
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