Overview
Since the Report + 3.5%
Revenue grew 18.8% year over year, EPS beat the estimate by 3.4%; the stock rose 4.2% in its first reaction.
- RevenueQ1
- $92.28B
- ▲ 18.8% YoY · 1.8% Beat
- EPSAdjusted
- $4.89
- Estimate $4.73 · 3.4% Beat
Verdict
BUYMicrosoft grew fiscal first-quarter revenue 18.8% to $92.28 billion, and Azure grew 48%, beating the company's own guidance. The stock rose 4.2% after hours because faster cloud growth outweighed revenue landing close to expectations. The next thing to watch is second-quarter Azure guidance on the earnings call.
Close on Report DayOct 28
$531.01▲ 4.2%Report-Day Move
- Market Cap(Today)
- ≈ $4.08 T
- 1Y Return(At Report)
- − 2%
- P/E(At Today's Price · $18.04 · Trailing 12M)
- 30.5
- PEG(Next Year's Estimate)
- 1.53
- Net Margin(Trailing 12M)
- 40.3%
Earnings Summary
In 30 Seconds- Revenue rose 18.8% to $92.28 billion, and adjusted EPS of $4.89 beat the estimate by 3.4%.
- Azure grew 48%, topping the company's 44-45% guidance; the commercial contract backlog reached $677 billion.
- The stock rose 4.2% after hours as the market rewarded faster cloud growth.
The Numbers
Azure Growth
48%
Company Guidance 44 – 45% · Constant FX
Microsoft Cloud
$63.9B
▲ 30% YoY · Gross Margin 66%
Commercial Contract Backlog
$677B
▲ 73% YoY
Stock Reaction
▲ 4.2%
After Hours, 4:39 P.m. ET · Not Settled
Quarterly Revenue ($ Billion)
77.67
Q1 26 · $77.7 B
81.27
Q2 26 · $81.3 B · QoQ + 4.6%
82.89
Q3 26 · $82.9 B · QoQ + 2.0%
90.01
Q4 26 · $90.0 B · QoQ + 8.6%
92.28
Q1 27 · $92.3 B · QoQ + 2.5% · YoY + 18.8%
- Q1 26
- Q2 26
- Q3 26
- Q4 26
- Q1 27
Q2 FY2027 Company Guidance
- Q1 Revenue: Guidance vs Actual89.85 – 90.95 billion89.85 billion90.95 billion
Actual 92.28 · Market Expectation 90.63 · Q2 Guidance on the Call1.5% Above Top of Range ▲
- Q1 Agents and Infra75.15 – 75.75 billion75.15 billion75.75 billion
Actual 76.801.4% Above Top of Range ▲
- Q1 Devices and Consumer14.7 – 15.2 billion14.7 billion15.2 billion
Actual 15.481.9% Above Top of Range ▲
- Q1 Azure Growth (Constant FX)44% – 45%44%45%
Actual 48% · Earnings-call Details Will Be Added Tonight.3 Points Above Top of Range ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±1.9% around the midpoint.
Segment and KPI Data
Revenue by Segment
- Agents and Infra$76.8 BShare 83.2%▲ 25.0% YoY
Azure, Microsoft 365 cloud and server licensing
- Devices and Consumer$15.5 BShare 16.8%▼ 3.0% YoY
Windows, Xbox, search and advertising
Key Metrics
Microsoft Cloud Revenue
$63.9 B
▲ 30.0% YoYPress Release
Azure Growth
48.0%
Press Release
Commercial Remaining Performance Obligation
$677 B
▲ 73.0% YoYPress Release
Operating Cash Flow
$58.0 B
▲ 28.7% YoYPress Release
Additions to Property and Equipment
$39.4 B
▲ 103.0% YoY10-Q
Microsoft Cloud Gross Margin
66.0%
Press Release
Shares are computed over the segment total: $92.3 B. Source: Press Release.
Metrics come only from the company's own filings; each one names the document it was taken from.
“We are delivering greater capability, choice, control, and cost efficiency for customers across our entire stack. By helping organizations build and own their own intelligence, and earning trust through agent safety and security, we are translating our innovation into growing adoption and real-world impact across every industry.”
- Organizations Owning Their AI
- Agent Safety and Security
- Cost Efficiency Across the Stack
Summary and Review
Summary
Microsoft's revenue rose 18.8% year over year to $92.28 billion. The market expected $90.63 billion, so revenue is in line, 1.8% above. EPS excluding OpenAI came in at $4.89, beating the $4.73 estimate by 3.4%. Revenue also beat the top of the company's own guidance range by 1.5%. Second-quarter guidance will come on the earnings call, so the guidance gate is not yet scored. Operating income rose 21% to $45.92 billion. Microsoft also moved to a new segment structure this quarter.
The stock closed the regular session flat at $531.01. After hours it rose 4.2% to $553.39; that price is as of 4:39 p.m. ET and has not settled. The market did not read this report as a revenue story; it read it as an Azure story. Azure grew 48%, while company guidance was 44-45%. Microsoft Cloud growth also accelerated to 30%. Before the report, the stock was down 2.0% over the past year. The after-hours gain is large enough to erase that loss in one session.
The score is 74 and the view is buy; the score is provisional until the earnings call. The earnings gate is open and the revenue gate is in line; the decision table puts this mix in the 70-79 band. The guidance gate will be added after the call and the score reassessed. Two caveats sit within the band. Capital spending doubled in a year and cut free cash flow by 27%. Commercial bookings also fell 12% year over year.
Full Review
Azure growth accelerated.
Azure and other cloud services grew 48% year over year. Growth in constant currency was also 48%. Company guidance for the quarter was 44-45% in constant currency, so the result beat the top by 3 points. It is the first gauge showing the investment is paying off. Starting this quarter, Microsoft changed the definition of Azure. Items such as GitHub and developer cloud moved to Microsoft 365 commercial cloud. That limits direct comparison with older quarters. Microsoft Cloud revenue rose 30% to $63.9 billion, or 31% in constant currency. Cloud gross margin was 66%. Commercial remaining performance obligation, meaning contracted future revenue, rose 73% to $677 billion. That is about 1.8 times the company's annualized revenue.
The new segment structure shows one engine.
Starting this quarter, Microsoft reports two segments instead of three. Agents and Infra covers Azure, Microsoft 365 cloud and server licensing. Its revenue rose 25% to $76.80 billion. It now accounts for 83.2% of total revenue. Segment operating income rose from $32.72 billion to $40.56 billion, an increase of 24%. Devices and Consumer fell 3% to $15.48 billion. Windows OEM and devices revenue dropped 22%. Xbox content and services fell 2%. Search and advertising revenue excluding traffic acquisition costs rose 12%. While the consumer side shrinks, growth comes almost entirely from enterprise cloud. The structure makes clear that one segment now carries most of the company's value.
Capital spending doubled.
Additions to property and equipment were $39.37 billion. A year ago they were $19.39 billion, an increase of 103%. Operating cash flow rose 29% to $58.0 billion. Subtracting capital spending leaves free cash flow of $18.63 billion. A year ago it was $25.66 billion, a decline of 27%. The company returned $10.2 billion to shareholders in the quarter. Of the $60 billion buyback program, $37.7 billion remains. Investment in AI capacity is consuming most of the cash flow for now. How fast that spending turns into Azure growth is therefore decisive. The company will update its spending outlook on the call. See the cash flow guide for background.
The OpenAI effect and earnings quality.
GAAP net income rose 32% to $36.63 billion. Excluding a $207 million net gain from the OpenAI investment, net income was $36.42 billion. That is an 18% annual increase. In the same quarter last year there was a $3.09 billion OpenAI-related loss. So GAAP growth overstates the underlying profit increase. Adjusted EPS was $4.89 and GAAP EPS $4.92. Operating margin was 49.8%, compared with 48.9% a year ago. The margin expanded 0.9 points. Profitability is holding despite the jump in capital spending. Depreciation, however, will rise as new data centers come online. That could pull operating margin lower in coming quarters. So far the company has offset that pressure with revenue growth.
Next quarter, watch one line.
The average 12-month analyst target is $605.12. Based on the pre-report close, the stock trades 14.0% below it. Adjusted EPS over the past four quarters totals $18.04. The market expects fiscal 2028 EPS to grow 19.9% over fiscal 2027. The one number for readers to track is Azure growth. If it stays above 45% next quarter, capital spending is turning into revenue. If it drops below 40%, the gap between spending and revenue is widening. The second gauge is commercial bookings; this quarter's 12% decline needs to reverse. Second-quarter guidance on the call will be the first clue for these gauges. The capital spending plan will also become clearer on the same call. This guide explains how to read an earnings day.
Looking Ahead
Strengths and Risks
5 Strengths · 5 RisksStrengths
5- Azure grew 48%, beating the company's 44-45% guidance by 3 points.
- Commercial remaining performance obligation rose 73% to $677 billion.
- Revenue beat the top of the company's own guidance range by 1.5%.
- Operating margin expanded 0.9 points to 49.8%.
- Microsoft Cloud revenue rose 30% to $63.9 billion.
Risks
5- Capital spending rose 103% to $39.37 billion and free cash flow fell 27%.
- Commercial bookings fell 12% year over year.
- Revenue beat the market expectation by only 1.8%.
- Windows OEM and devices revenue fell 22% year over year.
- The new Azure definition makes growth comparisons with past quarters harder.
What to Watch
3- Second fiscal quarter guidance will be given on the October 28 evening earnings call.
- The $0.98 per-share quarterly dividend will be paid on December 10.
- Second fiscal quarter results are expected in late January 2027.
Upcoming Earnings
To Understand This