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The Backlog That One Customer FilledNarrow moat

Microsoft (MSFT) — moat facet

A backlog is only worth the creditworthiness of whoever signed it - and this one stopped growing in the quarter the spending to serve it doubled.

Microsoft's commercial remaining performance obligation — revenue under contract but not yet recognised — reached $678 billion, up 84% year on year1. Three months later it stood at $677 billion5: up 73% against the prior year, and fractionally down against the prior quarter. That is an extraordinary asset: multi-year, contracted, and the justification for the enormous capital expenditure the company has committed to.

The backlog, and the part arriving within twelve months ($B)$229BFY2023 total$103BFY2023 near-term$684BFY2026 total$205BFY2026 near-termForms 10-K FY2023 and FY2026; the near-term share fell from 45% to 30%
The backlog tripled and the part due next year merely doubled. What was bought was not more business sooner but the same business promised for longer.

The composition deserves more attention than the headline, and so does the timing. Microsoft expects to recognise approximately 30% of the backlog over the next twelve months, with a weighted average duration of about 2.3 years2 — and that share has fallen steadily, from 45% in fiscal 2023 and 2024 to 40% in 2025. So while the backlog roughly tripled over three years, the portion arriving within a year merely doubled, from about $103 billion to about $205 billion. What was bought was not more business sooner; it was the same business promised for longer.

The largest single component is OpenAI, which committed to an incremental $250 billion of Azure purchases under the restructured October 2025 agreement3, with spending scheduled to ramp heavily toward the end of the decade. Microsoft booked $24.1 billion of revenue from that customer in fiscal 2026 and was owed $6.0 billion of it at the year end4; in the September quarter alone it booked $10.0 billion and was owed $7.2 billion6.

Whether that is a strength or an exposure depends on a judgement about OpenAI. It is a commitment from a counterparty whose own revenues remain far below its obligations, made partly to a company that owns about a quarter of it — the same circularity that appears on Nvidia's and Alphabet's client pages, at similar scale. Watch the near-term share of the backlog rather than the headline: a number that keeps falling means the queue is lengthening faster than it is converting. A backlog is only worth the creditworthiness of whoever signed it, and the schedule on which they signed.

Moat trajectory: Narrowing

The backlog nearly doubled, which is a genuine achievement, and roughly 45% of it now traces to one counterparty whose revenues are far below its commitments and which Microsoft part-owns. Size improving while quality concentrates is the same pattern visible on Nvidia's and Alphabet's client pages, and it deserves the same scepticism.

The number that tests this moat
Moat Explorer calc
Contracted backlog against the year's revenue
1.95x trailing revenue, from 2.04x at the fiscal year end

A backlog is reassuring only if it keeps pace with the business behind it. Commercial remaining performance obligation was $677 billion at September 2026 against $346.4 billion of trailing revenue, having been $678 billion against $331.8 billion three months earlier - so it grew 73% against last year and fell against last quarter. Watch the sequential figure, not the annual one.

How it's calculated: Revenue allocated to remaining performance obligations / total revenue: $684B / $331.8B = 2.1x (FY2026); $375B / $281.7B = 1.3x.
Source: Moat Explorer calc from Microsoft Forms 10-K, FY2026 and FY2025 ↗
References
  1. ReportedCommercial remaining performance obligation of $678 billion at 30 June 2026, up 84% year on year.
    Microsoft, Q4 FY2026 earnings release (Form 8-K, Exhibit 99.1) — quarter ended June 30, 2026: revenue $90,007M (+18%); operating income $40,603M (+18%); net income $35,766M GAAP and $35,286M non-GAAP; diluted EPS $4.81 and $4.74; Microsoft Cloud revenue $59.3B (+27%); commercial remaining performance obligation +84% to $678B; Azure and other cloud services +43%; Productivity and Business Processes $37,847M (+14%); Intelligent Cloud $39,306M (+32%); More Personal Computing $12,854M (-4%); Windows OEM and Devices -7%; XBOX content and services -10%; a $3.2B gain on the investment in Anthropic and lower-than-expected Voluntary Retirement Program expenses contributing $0.27 of EPS against guidance; Azure revenue surpassed $100 billion for the first time and Microsoft 365 Copilot reached over 30 million paid seats; $10.2B returned to shareholders — Q4 FY2026 (quarter ended June 30, 2026) · publ. July 29, 2026 · source ↗
  2. ReportedMicrosoft expects to recognise approximately 30% of the backlog within twelve months, at a weighted average duration of about 2.3 years; the share was 40% in fiscal 2025 and 45% in fiscal 2024 and 2023, against totals of $375B, $275B and $229B.
    Microsoft Form 10-K, FY2026 — financial statements and notes: net income $133,749M, diluted EPS $17.95; segment revenue and operating income (Productivity and Business Processes $139,996M / $83,879M; Intelligent Cloud $137,791M / $56,972M; More Personal Computing $54,052M / $14,386M); revenue by product and service offering; additions to property and equipment $115,948M; net cash from operations $182,935M; unearned revenue $75,712M with $194,184M deferred and $185,737M recognised; revenue allocated to remaining performance obligations $684B, commercial $678B at a weighted average duration of about 2.3 years with approximately 30% expected within twelve months; contractual obligations $743,821M — FY2026 (ended June 30, 2026) · publ. July 29, 2026 · source ↗
  3. ReportedOpenAI committed to purchase an incremental $250 billion of Azure services under the October 2025 agreement.
    Microsoft — 'The next chapter of the Microsoft-OpenAI partnership' (Oct 28, 2025): OpenAI recapitalized as a PBC; Microsoft holds ~27% on an as-converted basis (~$135B at the ~$500B valuation); IP rights through 2032; OpenAI committed to an incremental $250B of Azure — Announced Oct 28, 2025 · publ. Oct 28, 2025 · source ↗
  4. ReportedRevenue from OpenAI was $24.1 billion in fiscal 2026, with $6.0 billion of receivables outstanding at the year end and an as-converted interest of about 25%.
    Microsoft Form 10-K, FY2026 — OpenAI disclosures: an equity-method investment representing an approximate 25% interest on an as-converted basis, accounted for by hypothetical liquidation at book value; revenue from commercial arrangements with OpenAI of $24.1 billion in fiscal 2026 and accounts receivable of $6.0 billion at 30 June 2026; total funding commitments of $13.0 billion of which $11.9 billion funded; other income included $6.5 billion of net gains in fiscal 2026 and $4.8 billion of net losses in fiscal 2025, the gains relating primarily to the dilution gain from the OpenAI Recapitalization — FY2026 (ended June 30, 2026) · publ. July 29, 2026 · source ↗
  5. ReportedThree months later it stood at $677 billion: up 73% against the prior year, and fractionally down against the prior quarter.
    Microsoft Form 10-Q for the quarter ended September 30, 2026 - revenue allocated to remaining performance obligations: $683 billion total and $677 billion commercial at September 30, 2026, with approximately 30% expected within twelve months. — Q1 FY2027 · publ. 2026-10-29 · source ↗
  6. ReportedMicrosoft booked $24.1 billion of revenue from that customer in fiscal 2026 and was owed $6.0 billion of it at the year end; in the September quarter alone it booked $10.0 billion and was owed $7.2 billion.
    Microsoft Form 10-Q for the quarter ended September 30, 2026 - OpenAI related-party note: an equity method investee and a related party under ASC 850, revenue from commercial arrangements of $10.0 billion in the quarter, accounts receivable of $7.2 billion against $6.0 billion at June 30, 2026, and an approximate 24% interest on an as-converted basis. — Q1 FY2027 · publ. 2026-10-29 · source ↗
Sources
Generated October 29, 2026