Key Notes
- Microsoft beat earnings and revenue estimates as Azure sales grew 48% to $33.2 billion, lifting shares about 4% after hours on October 28.
- Capital expenditure including finance leases reached $45.2 billion, below expectations as some third-party capacity deliveries were delayed.
- Management forecasts Azure growth of 49% to 50% next quarter and expects positive free cash flow through fiscal 2027 despite rising infrastructure spending.
Microsoft Corp. (NASDAQ: MSFT) shares rose about 4% in after-hours trading on October 28 after the company beat quarterly earnings and revenue estimates, with Azure growth accelerating to 48%. The results gave investors stronger evidence of cloud demand even as the cost of building AI infrastructure continued to weigh on cash generation.
The company reported revenue of $92.279 billion for its fiscal 2027 first quarter, ended September 30, up 19% from a year earlier. Adjusted earnings reached $4.89 a share, while operating income increased 21% to $45.915 billion.
Microsoft also forecast another quarter of accelerating Azure growth. Its smaller-than-expected capital expenditure reflected delayed capacity deliveries, leaving investors to assess both the pace of customer adoption and when infrastructure spending will catch up.
Microsoft Beats Earnings and Revenue Estimates
Adjusted earnings of $4.89 a share exceeded the $4.73 LSEG consensus, while revenue of $92.28 billion topped the $90.69 billion estimate, CNBC reported. The roughly 4% share-price gain was an extended-session move on October 28.
On a GAAP basis, Microsoft earned $36.629 billion, or $4.92 a share, compared with $27.747 billion, or $3.72 a share, a year earlier. Adjusted net income was $36.422 billion, up 18%.
The adjusted figures exclude the effect of Microsoft’s investments in OpenAI. The company’s reconciliation removes a $207 million net gain, equivalent to three cents a share, from this quarter’s GAAP results. Keeping that adjustment separate matters when comparing the headline profit increase with underlying earnings growth.
Azure Growth Accelerates as Cloud Revenue Reaches $63.9 Billion
Azure generated $33.165 billion of revenue, up 48% both as reported and excluding currency movements. The dollar figure gives investors a clearer measure of the scale of Microsoft’s cloud infrastructure business, alongside its growth rate.
The broader Microsoft Cloud measure reached $63.9 billion, increasing 30%, or 31% in constant currency. That measure covers several cloud offerings and should not be confused with Azure alone or treated as a separate reporting segment.
Microsoft now reports under two segments, following changes announced in September. Agents and Infra revenue rose 25% to $76.795 billion. Devices and Consumer revenue declined 3% to $15.484 billion, with Windows OEM and devices revenue falling 22%.
The cloud expansion extended beyond infrastructure. Microsoft 365 commercial cloud revenue increased 17% as reported, while industry solutions cloud revenue grew 10%. Commercial remaining performance obligations reached $677 billion, up 73%; that backlog represents contracted future revenue, rather than sales already recognized or cash already collected.
Capex Miss Reflects Delivery Timing
Capital expenditure including finance leases totaled $45.2 billion, about 30% higher than a year earlier but below the $50.67 billion StreetAccount estimate cited by CNBC. Chief Financial Officer Amy Hood said on the earnings call that some third-party capacity expected in the quarter had been delayed.
Cash paid for property and equipment was separately $39.367 billion. That cash-flow measure differs from the broader capital expenditure figure, which includes assets obtained through finance leases. Comparing the two without accounting for their definitions can give a misleading impression of the investment pace.
Roughly three-quarters of quarterly capex went toward shorter-lived assets, principally CPUs and GPUs, including higher memory and storage costs. The remaining investment covered longer-lived infrastructure.
Hood forecast more than $50 billion of capex in the December quarter and approximately $170 billion for calendar 2026. She expects spending to accelerate in the second half of fiscal 2027 as equipment investment continues and delayed third-party capacity arrives.
The initial capex shortfall also pressured specialist cloud providers, as we reported. For those suppliers, delivery dates influence when large customer contracts can begin producing revenue.
Cash Flow Remains Positive as Investment Rises
Operating cash flow rose 29% to $58 billion. After subtracting cash additions to property and equipment, free cash flow was approximately $18.6 billion, down about 27% from the prior year’s roughly $25.7 billion.
That leaves Microsoft generating substantial cash after infrastructure purchases, while showing how much of its operating inflow is being absorbed by expansion. The company also returned $10.2 billion to shareholders through dividends and share repurchases during the quarter.
Cost controls remain part of the outlook. Microsoft recently opened voluntary buyouts to about 60,000 eligible employees, as we previously reported. That figure describes eligibility, rather than confirmed departures. Hood said the December-quarter cost guidance includes an estimate for the exit offer.
Azure Outlook Keeps Capacity in Focus
Microsoft expects fiscal second-quarter revenue of $96 billion to $97.1 billion, representing growth of 18% to 19%. Azure revenue is forecast to rise 49% to 50% in constant currency, with management saying customer demand continues to exceed available supply.
Hood expects Microsoft to remain free-cash-flow positive during fiscal 2027, while retaining the option to raise funding when terms are attractive. She also projected Microsoft Cloud gross margin of about 65% in the December quarter, down year over year as the business mix shifts toward Azure.
For MSFT investors, the next quarter will test whether faster cloud growth and infrastructure efficiencies can offset the expense of adding capacity. The earnings beat supports the demand picture; delivery timing, cash spending and cloud margins will determine how much of that growth reaches shareholders.
