Original title: Microsoft (MSFT.US) Q1 revenue up 19% to nearly $92.3 billion; Azure revenue surges 48%
Author: Zhitong Finance Xu Ran
Source: Zhitong Finance (智通财经)
Hero image source: pexels
Zhitong Finance APP learned that Microsoft reported its fiscal Q1 2027 earnings on Wednesday. The company posted quarterly revenue of $92.279 billion, up 19% year over year; GAAP net income was $36.629 billion, up 32% from $27.747 billion in the year-ago quarter; and GAAP diluted earnings per share were $4.92, up from $3.72 a year earlier, an increase of 32%.
Non-GAAP adjusted net income reached $36.422 billion, up 18% year over year; adjusted EPS was $4.89, up from $4.13 a year earlier, an increase of 18%. Microsoft said the non-GAAP results exclude the impact of its investment in OpenAI.
On profitability, Microsoft's fiscal Q1 operating income reached $45.915 billion, up 21% year over year, or 22% in constant currency; operating margin was approximately 49.8%, up from 48.9% a year earlier. Gross profit for the quarter was $62.559 billion, up about 17% year over year, with gross margin around 67.8%.
Microsoft CFO Amy Hood said the company had a strong start to the new fiscal year, with Microsoft Cloud revenue of $63.9 billion, up 30% year over year, or 31% in constant currency, with growth accelerating further. Revenue, operating income, and EPS for the quarter all exceeded internal expectations.
Azure revenue up 48% as cloud continues to benefit from AI demand
The cloud business continued to be a key growth driver for Microsoft. In fiscal Q1, Azure revenue reached $33.165 billion, up 48% from $22.384 billion a year earlier, reflecting continued expansion of enterprise demand for cloud computing and AI infrastructure.
Overall Microsoft Cloud revenue reached $63.9 billion, up 30% year over year, or 31% in constant currency. Meanwhile, Microsoft's commercial remaining performance obligations reached $677 billion, up 73% year over year, indicating continued growth in the scale of signed-but-unrecognized commercial contracts.
Microsoft 365 commercial cloud revenue grew 17% year over year, or 18% in constant currency. After adjusting for a one-percentage-point impact from revenue recognition in the prior-year period, commercial cloud revenue grew 18% year over year, or 19% in constant currency. Microsoft 365 consumer cloud revenue grew 17% year over year, and industry solutions cloud revenue grew 10%.
Microsoft Chairman and CEO Satya Nadella said the company is delivering greater capability, choice, control, and cost-effective solutions to customers through its full technology stack.
Nadella noted that by helping businesses build and own their own intelligence, while strengthening the security and reliability of AI agents, Microsoft is driving broader adoption of innovative technology across industries and translating it into real business outcomes.
Under the new segment structure, Agents and Infra revenue grows 25%
Notably, Microsoft reorganized its business segments starting in fiscal 2027, regrouping operations into two segments: Agents and Infra (agents and infrastructure) and Devices and Consumer.
Of these, Agents and Infra posted fiscal Q1 revenue of $76.795 billion, up 25% year over year, with operating income of $40.558 billion, up about 24% from $32.718 billion a year earlier. The segment covers Azure, Microsoft 365 cloud services, and productivity and server licensing, making it Microsoft's largest source of revenue and profit.
By comparison, the Devices and Consumer segment posted fiscal Q1 revenue of $15.484 billion, down 3% year over year, with operating income of $5.357 billion, up about 2%. Breaking it down: search and advertising revenue, excluding traffic acquisition costs, grew 12% year over year; Xbox content and services revenue fell 2% year over year, or 1% in constant currency.
Windows OEM and devices were relatively soft, with revenue down 22% year over year. By product and service revenue, Microsoft's fiscal Q1 Azure revenue was $33.165 billion, Microsoft 365 cloud revenue $27.778 billion, productivity and server licensing revenue $8.407 billion, search and advertising revenue $6.554 billion, and Xbox revenue $5.379 billion.
OpenAI investment income affects GAAP profit performance
Notably, Microsoft's GAAP net income growth this quarter was significantly higher than non-GAAP growth, mainly due to the accounting impact of its OpenAI investment. Microsoft disclosed that in fiscal Q1 2027, net gains from its OpenAI investment increased GAAP net income by $207 million, equivalent to $0.03 in diluted EPS.
By comparison, in the prior-year period, net losses on the OpenAI investment reduced net income by about $3.1 billion, or $0.41 per share. Accordingly, excluding the OpenAI investment impact, Microsoft's adjusted net income grew 18% year over year in fiscal Q1, with adjusted EPS up 18% — below the 32% growth under GAAP.
Capital expenditure roughly doubles; operating cash flow up 29%
On cash flow, Microsoft's fiscal Q1 operating cash flow reached $58 billion, up about 29% from $45.057 billion a year earlier. At the same time, the company continued to ramp up infrastructure investment. Capital expenditures for property and equipment reached $39.367 billion in the quarter, up about 103% from $19.394 billion a year earlier.
On an operating cash flow minus property and equipment basis, Microsoft's fiscal Q1 free cash flow was approximately $18.633 billion, down from $25.663 billion a year earlier.
On the balance sheet, as of September 30, 2026, Microsoft held cash, cash equivalents, and short-term investments totaling $64.509 billion, down from $76.843 billion at the end of June 2026. Microsoft returned $10.2 billion to shareholders in fiscal Q1 through share buybacks and dividends, including approximately $4.379 billion in buybacks and $6.757 billion in cash dividends.
