In the July–September 2026 quarter, Microsoft's cash capital expenditure reached $39.367 billion, up about 10% from roughly $35.8 billion in the previous quarter. Over the same three months, the balance of leases that have been signed but have not yet commenced ("unstarted leases") rose by $35.5 billion to $364.6 billion. Meanwhile, commercial RPO (remaining performance obligations), which represents contracted but not yet recognized revenue in the commercial business, was essentially flat at $677 billion. As a result, unstarted leases now equal about 54% of commercial RPO. Microsoft appears to be adding future infrastructure costs through lease contracts faster than it is adding contracted future revenue. The evidence comes from the notes to the Form 10-Q filed on October 28, which show how both balances have moved over the past year.
Azure up 48%, cash capex roughly double the year-earlier level
In its July–September 2026 results, announced on October 28, Microsoft reported revenue of $92.279 billion, up 19% year over year. Azure revenue was $33.165 billion, up 48% from $22.384 billion in the prior-year period, restated on a comparable basis. In a Form 8-K filed on September 2, Microsoft introduced a new Azure revenue definition that excludes GitHub's cloud services and Security Copilot, and guided to constant-currency growth of 44–45% for the July–September quarter. Actual growth exceeded that guidance and accelerated from 42% in April–June on the same definition.
Infrastructure investment is expanding alongside Azure's growth. Acquisitions of property and equipment on the cash flow statement, meaning cash capex, were $39.367 billion, about 2.03 times the $19.394 billion of a year earlier. The prior quarter's spending can be derived by subtracting the nine-month cumulative figure through March 2026 ($80.146 billion) from the full-year acquisitions reported in the fiscal 2026 Form 10-K ($115.948 billion). That gives about $35.8 billion for April–June, meaning July–September spending rose about 10% quarter over quarter.
Reflecting this buildup, net property and equipment rose from $313.076 billion at the end of June to $346.844 billion at the end of September. Free cash flow, calculated as operating cash flow of $58.0 billion minus property and equipment acquisitions, was $18.633 billion. That is down about 27% from $25.663 billion a year earlier (operating cash flow of $45.057 billion less capex of $19.394 billion).
What unstarted leases and commercial RPO represent
Unstarted leases are contracts that have been signed but whose lease terms have not yet begun. Before commencement, future payments under these contracts are not reflected in the current period's acquisitions of property and equipment; they are disclosed in the notes to the Form 10-Q. As of the end of September 2026, unstarted leases totaled $364.6 billion, mainly for data center facilities. Commencement dates are spread from Microsoft's fiscal 2027 through fiscal 2034 (its fiscal year begins in July), and lease terms range from 1 to 20 years. Disclosures since the end of June also include a note that some contracts are contingent on certain conditions being met.
Commercial RPO, by contrast, represents amounts in the commercial business, such as Azure and enterprise Microsoft 365, that are contractually committed by customers but not yet recognized as revenue. At the end of September, commercial RPO was $677 billion, up 73% year over year, and total company RPO was $683 billion. According to the Form 10-Q, the weighted-average remaining term of commercial RPO is about 2.3 years, and about 30% is expected to be recognized as revenue over the next 12 months. RPO covers only performance obligations fixed by contract; it does not include future Azure usage that has not yet been contracted.
So while both figures are contractually defined future amounts, their nature differs sharply. Unstarted leases are contracts in which Microsoft pays; commercial RPO is based on contracts under which Microsoft will recognize revenue from customers. The former corresponds to future spending and the latter to future revenue, and they are not equivalent in accounting terms.
The scope and time horizons also differ. Unstarted leases include only payments under lease contracts, and exclude other forms of infrastructure spending such as equipment purchase commitments. Commercial RPO, on the other hand, includes not just Azure but also contracts such as Microsoft 365. Lease terms run 1 to 20 years, while the weighted-average remaining term of commercial RPO is about 2.3 years. Comparing the two therefore shows differences in the pace and scale of contract balances, but the ratio cannot be treated as an indicator of profitability or solvency.
Unstarted leases reach 54% of commercial RPO, double the level a year earlier
Microsoft's unstarted leases grew about 3.4 times, from $106.2 billion at the end of September 2025 to $364.6 billion at the end of September 2026. Over the same period, commercial RPO also rose 73%, from $392.0 billion to $677.0 billion, but unstarted leases grew far faster. In the most recent July–September 2026 quarter in particular, unstarted leases increased by $35.5 billion while commercial RPO fell by $1.0 billion. Comparing the past year shows a gap opening between the two growth rates.
{
"type": "line",
"title": "Microsoftの未開始リースと商業RPOの四半期末残高",
"unit": "億ドル",
"categories": ["2025年9月末", "2025年12月末", "2026年3月末", "2026年6月末", "2026年9月末"],
"series": [
{ "name": "未開始リース", "values": [1062, 1551, 1966, 3291, 3646] },
{ "name": "商業RPO", "values": [3920, 6250, 6270, 6780, 6770] }
],
"caption": "未開始リースは主にデータセンター向け。2026年6月末以降は一部が契約条件の充足を前提とする",
"source": "Microsoft Form 10-Q／10-K"
}Based on Microsoft's Form 10-Q and Form 10-K filings, quarterly increases are summarized below (in $100 million units).
| Quarter | Increase in commercial RPO | Increase in unstarted leases |
|---|---|---|
| Oct–Dec 2025 | 2330 | 489 |
| Jan–Mar 2026 | 20 | 415 |
| Apr–Jun 2026 | 510 | 1325 |
| Jul–Sep 2026 | −10 | 355 |
Of the past four quarters, commercial RPO's increase exceeded that of unstarted leases only in October–December 2025. That period coincided with OpenAI's October 2025 agreement to purchase an additional $250 billion of Azure services. In each of the three quarters since, the increase in unstarted leases has exceeded that of commercial RPO.
Dividing the $364.6 billion of unstarted leases at the end of September 2026 by commercial RPO of $677.0 billion gives 53.86%, or about 54%. By the same calculation, the figure was 27.1% at the end of September 2025 ($106.2 billion ÷ $392.0 billion) and 48.5% at the end of June 2026. In other words, the ratio of unstarted leases to commercial RPO has roughly doubled over the past year. As noted above, however, the numerator is limited to lease contracts while the denominator includes contracts from commercial businesses beyond Azure, so the ratio is only a rough gauge of relative scale.
In yen terms, using the ECB reference rate of 157.96 yen to the dollar on October 28, 2026, unstarted leases of $364.6 billion equal about 57.6 trillion yen and commercial RPO of $677.0 billion equals about 106.9 trillion yen. Over one year, commercial RPO grew 1.73 times while unstarted leases grew about 3.4 times, and in the latest three months only unstarted leases increased. The infrastructure costs Microsoft has committed to through leases are accumulating faster than the balance of contracted future revenue. This difference in speed is the core of this analysis.
Not necessarily a sign of slowing Azure demand: the 50% level to watch in the next 10-Q
That said, unstarted leases growing faster than commercial RPO does not mean Azure demand is weakening. Commercial RPO captures only contracted amounts and does not reflect future Azure usage that has not yet been contracted. Indeed, Azure revenue grew 48%, above the company's guided 44–45%. The expansion of data center lease contracts can be read both as a response to existing demand and as an effort to secure supply capacity ahead of future growth.
It is also important to note that commercial RPO can swing sharply on large contracts. In October–December 2025, commercial RPO rose $233.0 billion from the prior quarter, coinciding with OpenAI's $250 billion additional purchase agreement. Large deals like this push commercial RPO up significantly and pull the ratio to unstarted leases down. The current 54% ratio could likewise fall substantially if a contract of similar size is booked.
Seasonality also needs to be considered. In the Form 10-Q, Microsoft explains that multi-year contracts tend to be concentrated in the fourth fiscal quarter (April–June), so this contracting cycle may have contributed to commercial RPO being flat in July–September. But a comparison with the year-earlier period shows a difference. From the end of June to the end of September 2025, commercial RPO rose $24.0 billion, from $368.0 billion to $392.0 billion, whereas in the same period of 2026 it fell by $1.0 billion. Seasonality alone is hard to cite as the explanation for this flat result.
On the other hand, with Azure sustaining growth as high as 48%, it would also be inappropriate to treat the stagnation in commercial RPO as direct evidence of slowing demand. What can be confirmed at this point is a structural change: infrastructure costs committed through lease contracts are growing faster than the balance of contracted future revenue. Microsoft itself acknowledges in the risk factors of its Form 10-Q that infrastructure investment is made "in advance of fully developed revenue streams." That makes it important to see how much revenue ultimately accumulates to match the upfront investment.
The next opportunity to test this view is the October–December 2026 Form 10-Q. The previous year's report for the same quarter was filed on January 28, 2026, so the next filing is expected in late January 2027. If the ratio of unstarted leases to commercial RPO falls below 50% there, this analysis's view that the gap between the two keeps widening would be proven wrong. The 50% level is a testing threshold set between 48.5% at the end of June 2026 and 53.86% at the end of September.
Even if the ratio falls below 50%, the cause needs to be checked. If large contracts are newly booked in commercial RPO, the ratio can fall even while unstarted leases keep growing. Distinguishing whether the denominator expanded because commercial RPO rose, or whether unstarted leases themselves declined, allows a more accurate assessment of the relationship between infrastructure investment and contracted demand.
Another point to watch is when the enormous unstarted leases actually begin. The current contracts are scheduled to commence in stages from FY2027 through FY2034. The $364.6 billion of unstarted leases as of the end of September is, for now, future contract value recorded in the notes. Once each lease commences, right-of-use assets and lease liabilities are in principle recorded on the balance sheet, and related expenses are recognized over the lease term. In evaluating Microsoft's AI infrastructure investment, it is necessary to track not only Azure's future growth rate but also when, and on what scale, these future payment obligations will be reflected in its financial statements.