What Microsoft (MSFT) Said on Its Q1 Earnings Call

Key Points

• Microsoft reported a strong fiscal Q1: Revenue rose 19% to $92.3 billion, while Microsoft Cloud revenue increased 30% to $63.9 billion and EPS grew 18% to $4.89.
• AI and Azure demand remained robust: Azure revenue grew 48%, Foundry revenue more than tripled, and Copilot usage expanded sharply, though customer demand continues to exceed available capacity.
• Microsoft is accelerating infrastructure spending: Capital expenditures totaled $45.2 billion in the quarter and are expected to exceed $50 billion in Q2, while the company forecast 18%–19% total revenue growth for the second quarter.

Microsoft NASDAQ: MSFT reported a fast start to fiscal 2027, with first-quarter revenue of $92.3 billion, up 19% from a year earlier, as demand for cloud infrastructure and artificial intelligence services lifted results above the company’s expectations.

Chief Financial Officer Amy Hood said operating income increased 21%, while earnings per share rose 18% to $4.89. Microsoft Cloud revenue reached $63.9 billion, growing 30%, with growth accelerating from the prior quarter. The company’s operating margin increased slightly to 50% despite continued spending on AI infrastructure, research and development, and talent.

“Our results exceeded expectations across revenue, operating income, and earnings per share, driven by strong demand across the Microsoft Cloud,” Hood said.

Azure growth and AI demand

Azure revenue rose 48% year over year, exceeding Microsoft’s expectations despite delays in some third-party capacity deliveries. Hood attributed the performance to Foundry, Microsoft’s platform for building and deploying AI agents, as well as improved monetization of CPU capacity.

Foundry revenue more than tripled from a year earlier, while the number of Foundry customers exceeded 120,000. Chief Executive Officer Satya Nadella said customers are increasingly using the platform to build agentic systems that connect models, data and business workflows. Revenue from open-source models on Foundry increased tenfold, while the number of customers using multiple models for agentic solutions grew fivefold.

Nadella said Microsoft’s AI strategy centers on delivering a connected stack that spans infrastructure, data, agent-building tools, workplace software and security. He described the company’s Copilot offerings as “the new OS for work,” saying daily users increased nearly 50% sequentially and more than fivefold year over year.

Microsoft also said the number of customers with more than 50,000 Copilot seats rose more than eightfold year over year. Volkswagen, for example, announced plans to deploy Copilot to more than 330,000 employees, according to Nadella.

Usage-based demand is also growing. The number of Copilot customers actively consuming credits through usage-based billing increased more than 75% during the quarter. On GitHub, agent-generated pull requests increased sixfold in the past six months and now account for more than one-third of pull requests on the platform, Nadella said.

Infrastructure investment and capacity constraints

Microsoft spent $45.2 billion on capital expenditures during the quarter, although Hood said some expected third-party capacity deliveries were delayed. Roughly three-quarters of the spending went toward short-lived assets, primarily CPUs and GPUs, including memory and storage.

The company added 24 data centers across five continents during the quarter and said it reduced dock-to-live times for new GB300 systems in its largest regions by about 20% sequentially. Microsoft also increased throughput for Copilot workloads by more than 50% from the prior quarter.

For the second quarter, Microsoft expects capital expenditures to exceed $50 billion. Calendar-year spending is expected to be about $170 billion, with spending accelerating in the second half as delayed third-party capacity arrives along with additional CPU and GPU deployments.

Hood said customer demand for Azure continues to exceed available supply. She said engineering improvements across GPUs, CPUs, storage, memory and application layers allowed Microsoft to allocate more capacity to Foundry customers during the first quarter. Higher-than-expected token pricing for certain AI models also benefited revenue.

Microsoft expects Azure revenue growth of 49% to 50% in constant currency in the second quarter. Hood cautioned that quarterly growth may vary based on infrastructure efficiency gains, new capacity additions, model mix and the timing of large commitments.

Commercial products and consumer trends

Microsoft 365 Commercial Cloud revenue increased 18%, or 19% in constant currency after adjusting for a prior-year comparison. The company cited stronger GitHub Copilot adoption and usage, partly offset by weaker sales execution for Microsoft 365 E3 and standalone products.

Paid Microsoft 365 commercial seats rose 5%, with expansion primarily in small and midsize businesses and frontline worker offerings. Hood said growth in the commercial cloud business was driven by both average revenue per user and seat growth, with premium products including Microsoft 365 Copilot, E5 and E7 contributing to pricing gains.

Devices and Consumer revenue fell 3% to $15.5 billion. Windows OEM and Devices revenue declined 22%, while Windows OEM revenue fell 27%, reflecting the prior-year benefit from Windows 10 end-of-support demand, inventory drawdowns by OEMs and channel partners, and weaker PC-market demand.

Xbox revenue declined 2%, as growth in first-party content was offset by lower third-party content and Game Pass revenue. Search and advertising revenue excluding traffic acquisition costs rose 12%, driven by higher volume and rates across LinkedIn, Edge and Bing.

Second-quarter outlook

Microsoft forecast total second-quarter revenue of $96 billion to $97.1 billion, representing growth of 18% to 19%. It expects Agents and Infra revenue of $80.1 billion to $80.7 billion, up 24% to 25%.

• Microsoft 365 Commercial Cloud growth is expected to be about 19% in constant currency.
• Search and advertising revenue excluding traffic acquisition costs is expected to grow at a low-double-digit rate.
• Xbox Content and Services revenue is expected to increase in the mid- to high-single digits, supported by content launches.
• Windows OEM and Devices revenue is expected to decline in the mid-30% range amid elevated inventory and softer PC demand.

Microsoft expects second-quarter operating expenses to rise about 9%, as it continues investing in R&D, compute capacity and talent. Hood said the company expects operating margin to decline slightly from the prior year, while remaining free-cash-flow positive for fiscal 2027.

About Microsoft (NASDAQ:MSFT)

Microsoft Corporation NASDAQ: MSFT is a global technology company that develops software, cloud services, devices and digital platforms. Its products and services are used by consumers, businesses, governments and educational institutions worldwide.

The company's principal offerings include the Windows operating system; Microsoft 365 productivity applications such as Word, Excel, Teams and Outlook; Azure cloud computing and infrastructure services; Dynamics business applications; and enterprise security solutions.

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