Microsoft Q1 FY27 results: Azure grows 48% to $33.2 billion as quarterly capex reaches $45.2 billion

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Microsoft reported results for the first quarter of its 2027 fiscal year on October 28, 2026, and the numbers show a company whose cloud business is accelerating while its spending on AI infrastructure keeps climbing. Revenue for the quarter ended September 30 reached $92.3 billion, up 19% from a year earlier, and operating income rose 21% to $45.9 billion. Azure, the cloud platform that hosts most of Microsoft's AI workloads and the models it sells to developers, grew 48% to $33.2 billion, the fastest growth rate the company has reported for the business in the periods shown on its current investor metrics page.

The other side of that growth is capital spending. Chief financial officer Amy Hood told analysts that capital expenditures, including finance leases, were $45.2 billion in the quarter, with $39.4 billion of that paid in cash for property and equipment, roughly double the $19.4 billion paid a year earlier. Microsoft said spending would have been higher still if some third-party capacity deliveries had not slipped, and it now expects capex of more than $50 billion in the December quarter and about $170 billion for calendar year 2026.

The results arrived the same week as quarterly reports from the other two large cloud providers. Alphabet reported that Google Cloud doubled to $30.7 billion, while Amazon said AWS grew 39% to $46 billion. Taken together, the three reports describe an industry in which demand for AI compute is still outrunning the hardware that can be brought online, and in which the largest companies are financing that build-out at a scale without precedent in their histories.

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HEADLINE FIGURES FOR THE QUARTER ENDED SEPTEMBER 30, 2026.

Microsoft's press release gives both GAAP figures and non-GAAP figures that exclude the effect of its investment in OpenAI. That distinction matters this year because the OpenAI line swung from a $3.1 billion net loss in the first quarter of fiscal 2026 to a $207 million net gain in the latest quarter, which flatters the GAAP growth rate. On a GAAP basis net income rose 32% to $36.6 billion and diluted earnings per share rose 32% to $4.92; excluding OpenAI, net income grew 18% to $36.4 billion and earnings per share grew 18% to $4.89.

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Metric	Q1 FY27	Change vs. Q1 FY26
Revenue	$92.3 billion	+19%
Operating income	$45.9 billion	+21% (+22% constant currency)
Net income (GAAP)	$36.6 billion	+32%
Net income (non-GAAP, excl. OpenAI)	$36.4 billion	+18%
Diluted EPS (GAAP / non-GAAP)	$4.92 / $4.89	+32% / +18%
Microsoft Cloud revenue	$63.9 billion	+30% (+31% constant currency)
Azure revenue	$33.2 billion	+48%
Commercial remaining performance obligation	$677 billion	+73%

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The company reorganized its reporting for fiscal 2027 into two segments, and prior-year amounts have been recast to match. Agents and Infra, which now holds Azure, Microsoft 365 commercial, GitHub, Dynamics and the rest of the commercial business, produced $76.8 billion in revenue, up 25%, and $40.6 billion in operating income, up about 24%. Devices and Consumer, which covers Windows OEM, Xbox, search and advertising, and consumer subscriptions, shrank 3% to $15.5 billion in revenue while its operating income edged up to $5.4 billion. Microsoft returned $10.2 billion to shareholders through dividends and share repurchases during the quarter.

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AZURE, MICROSOFT 365 AND THE REST OF THE PRODUCT LINES.

The product-level revenue table in the investor release shows where the growth is concentrated. Azure added almost $10.8 billion of quarterly revenue in a year, more than every other product line combined, and it grew 48% both as reported and in constant currency. Hood's outlook calls for Azure growth of 49% to 50% in constant currency in the December quarter, which would mean a further acceleration rather than a plateau.

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Product line	Q1 FY27 revenue	Q1 FY26 revenue	Change
Azure	$33.2 billion	$22.4 billion	+48%
Microsoft 365 cloud	$27.8 billion	$23.7 billion	+17%
Productivity and server licensing	$8.4 billion	$8.7 billion	-3%
Search and advertising	$6.6 billion	$5.9 billion	+10%
Xbox	$5.4 billion	$5.5 billion	-2%
Industry solutions	$5.3 billion	$4.9 billion	+9%
Windows OEM and devices	$3.6 billion	$4.6 billion	-22%

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Microsoft 365 commercial cloud revenue grew 17% as reported and 18% in constant currency, while commercial seat growth slowed to 5%, the lowest rate in the five quarters listed on the metrics page. The gap between revenue growth and seat growth reflects higher revenue per user from premium suites and Copilot add-ons rather than a fast-growing user base. Microsoft 365 consumer cloud revenue also rose 17%, a marked slowdown from the 24% to 33% range of the four quarters of fiscal 2026. Search and advertising revenue excluding traffic acquisition costs grew 12%.

The weak spot is hardware and Windows. Windows OEM and devices revenue fell 22%, and Hood guided to a decline "in the mid-thirties" for the December quarter, a sign that PC shipments and device sales are a drag on the consumer segment even as the commercial business accelerates.

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WHAT MICROSOFT DISCLOSED ABOUT COPILOT, FOUNDRY AND AGENTS.

Microsoft again declined to give a total count of paid Microsoft 365 Copilot seats, and Hood said on the call that the company was not updating that figure this quarter. Instead, chief executive Satya Nadella offered growth rates. Daily Copilot users rose nearly 50% from the previous quarter and more than five times from a year earlier, the number of customers with more than 50,000 Copilot seats grew more than eightfold year over year, and the number of Copilot customers on usage-based billing grew more than 75% during the quarter. Without a base number, these ratios show momentum but do not allow an estimate of how much revenue Copilot contributes.

On the developer side, Microsoft said revenue from Foundry, its platform for building applications and agents on top of models from OpenAI and other providers, more than tripled year over year and that Foundry now has more than 120,000 customers. Fabric, the data analytics platform, has more than 44,000 paying customers, up more than 50%. Nadella also said that more than 50 million agents are now registered in Microsoft's agent registry and that agents open more than a third of all pull requests on GitHub, a figure consistent with the company's push to make GitHub Copilot part of every GitHub Enterprise plan earlier in the same week.

For businesses already paying for Microsoft 365, the practical signal is that the company is moving more of its AI revenue toward consumption-based billing. The growth in usage-billed Copilot customers, alongside new role-specific offerings such as Copilot for finance in Excel and Cowork, suggests that IT and finance teams should expect AI costs to track usage more closely over the coming quarters rather than sitting entirely inside fixed per-seat licences.

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CAPITAL SPENDING, CAPACITY AND CASH FLOW.

Hood's explanation of capital spending was the most closely watched part of the call. Total capex of $45.2 billion includes finance leases, while cash paid for property and equipment was $39.4 billion, and she said the total would have been higher if third-party capacity expected in the quarter had arrived on time. Some third-party GPU-as-a-service contracts have moved into the second half of the fiscal year, which is why the calendar-year estimate of about $170 billion is lower than it would otherwise have been. For the December quarter, Microsoft expects capex of more than $50 billion.

Demand, according to Hood, still exceeds supply. Microsoft said it brought 24 new data centers online across five continents during the quarter, and that the time from delivery to live service for new NVIDIA GB300 systems in its largest regions fell by about 20% from the previous quarter. The commercial remaining performance obligation, which measures contracted revenue not yet recognized, stood at $677 billion, up 73%, with about 30% expected to be recognized over the next 12 months.

The cash-flow statement shows how much of the business's cash generation is being absorbed by the build-out. Operating cash flow rose 29% to $58.0 billion, but after subtracting the $39.4 billion paid for property and equipment, the remainder was about $18.6 billion, down from about $25.7 billion a year earlier on the same basis. Cash, cash equivalents and short-term investments fell to $64.5 billion from $76.8 billion at the end of June, while net property and equipment on the balance sheet rose to $346.8 billion from $313.1 billion. Hood said Microsoft expects to remain free cash flow positive in fiscal 2027.

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OUTLOOK FOR THE DECEMBER QUARTER.

Microsoft gives quarterly guidance on its earnings call rather than in the press release. The ranges below are those Hood gave for the second quarter of fiscal 2027, which ends December 31, 2026.

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Item	Q2 FY27 guidance
Total revenue	$96.0 to $97.1 billion (+18% to 19%)
Agents and Infra revenue	$80.1 to $80.7 billion (+24% to 25%)
Devices and Consumer revenue	$15.9 to $16.4 billion
Azure growth	49% to 50% in constant currency
Microsoft 365 commercial cloud growth	About 19% in constant currency
Windows OEM and devices	Decline in the mid-thirties percent
Microsoft Cloud gross margin	About 65%
Capital expenditures	More than $50 billion

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The guidance implies that cost of revenue will grow faster than revenue, at 26% to 27%, as new data centers and depreciation flow through the income statement, while operating expenses grow about 9%. Microsoft Cloud gross margin has already slipped from 68% in the first quarter of fiscal 2026 to 66% in the latest quarter, and the outlook of about 65% shows that the company expects the cost of AI capacity to keep weighing on cloud margins in the near term.

The quarter also came with Microsoft's broader cost measures in the background, including the Voluntary Exit Offer extended to about 60,000 employees earlier in October. Operating expenses in the latest quarter were nearly flat in sales and marketing and up 11% in research and development, which helped total operating margin rise to almost 50% despite the jump in cost of revenue.

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WHAT THE RESULTS ESTABLISH AND WHAT REMAINS UNCLEAR.

The established facts are clear from Microsoft's own filings and call. Azure is growing faster than at any point in the last five reported quarters, the commercial backlog has reached $677 billion, and the company is spending at a rate of roughly $45 billion to more than $50 billion a quarter on infrastructure to serve that demand. Operating margins remain close to 50%, and operating cash flow still covers cash capital spending, although the amount left after that spending has narrowed.

Several questions remain open. Microsoft still does not disclose the number of paid Copilot seats or the revenue Copilot generates, so the size of its AI application business can only be inferred from growth ratios. The company did not quantify how much of its backlog or Azure revenue comes from OpenAI; an analyst cited a figure on the call that Microsoft did not confirm. The timing of delayed third-party capacity is also a variable: if those deliveries arrive in the second half of the fiscal year as expected, capital spending and depreciation will rise further, and the December-quarter guidance for Azure growth of 49% to 50% will show whether added capacity translates directly into faster revenue.

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DATA STUDIOS

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