Microsoft earnings: first quarter of fiscal 2027

The quarter in brief

Microsoft's sales rose 19% from a year earlier to $92.3 billion in the three months to September.¹ The engine was its cloud business, the part that rents computing power and software to companies over the internet. Microsoft Cloud brought in $63.9 billion, up 30%, and within it Azure, the service that rents out raw computing power, grew 48%.¹ The headline figure for the future is $677 billion of business that companies have signed up for but that Microsoft has not yet delivered.¹

The bill for that growth is rising too. Spending on buildings and equipment roughly doubled to $39.4 billion, equal to about 43% of the quarter's sales.¹ The part of the business tied to personal computers shrank.¹

The profit figure needs one word of care. Net income, the profit after everything, rose 32%, but a year ago it was weighed down by a loss of about $3.1 billion linked to OpenAI, while this year the same item was a small gain of $207 million.¹ Without that effect, profit rose 18%. Operating profit, the profit from running the business before interest and tax, rose 21% and is the clearer measure of how the business itself did.¹

The figures, as the company printed them

Against what analysts expected

Analysts on average had expected earnings per share, which is net income divided by the number of shares, of $4.71 for the quarter, across 14 forecasts.² Microsoft's came to $4.92, and to $4.89 leaving out the effect of its OpenAI investments: above the forecast on both measures.¹

What the company expects

Microsoft's release puts no figures on the coming quarter or the year ahead.¹ The only pointer is the finance chief's remark that the quarter's results exceeded expectations for sales, operating profit and earnings per share.¹ That remark is about the quarter just ended, not a forecast.

The nearest thing to a view of the future is the $677 billion of signed business not yet delivered.¹ What matters here is the condition attached to it: turning those contracts into sales depends on Microsoft having its data centres built, equipped and switched on in time to deliver them. The pace at which the company can add capacity, not only the willingness of customers to sign, decides how quickly that pile of commitments becomes revenue.

The strong points

Azure grew 48%, the fastest of any major part of Microsoft, and it was the main force behind Microsoft Cloud's 30% growth.¹ This matters because cloud is now Microsoft's main growth engine, and growth this fast on a base this large suggests demand is still building rather than levelling off. Our figures do not show how much of it came from more customers and more usage, and how much from higher prices.

Business that companies have signed for but not yet received rose 73% to $677 billion.¹ These are commitments, not sales, but a pile that size suggests much of Microsoft's demand is secured well beyond this quarter. It is also the strongest argument for the heavy building programme: the company is constructing capacity against contracts already signed, not only against hope. Our figures do not show which customers or products account for the jump.

Cash from running the business was $58.0 billion, up from $45.1 billion a year earlier, and about 158% of net income.¹ Part of that gap comes from charges that cost no cash, such as the wear on equipment, and part from customers paying what they owed. It matters because this cash is what pays for the building. Even so, cash and short-term investments fell about 16% since June to $64.5 billion, as Microsoft also repaid $4.85 billion of debt; debt due within a year fell to $4.4 billion from $9.2 billion, and the company still holds far more cash than debt.¹ It returned $10.2 billion to shareholders, with dividends up to $6.8 billion and share buybacks down to $4.4 billion as spending on equipment rose.¹

The weak points

Sales of Windows to PC makers and of Microsoft's own devices fell 22%, to $3,551 million from $4,551 million.¹ That drop of about $1 billion pulled the whole consumer segment down 3% to $15.5 billion, the only segment with falling sales, and Xbox content and services also slipped 2%.¹ Beneath the cloud headline, other lines are slower still: Microsoft 365 commercial cloud grew 17%, and productivity and server licensing fell about 3%.¹ The strength of the quarter rests heavily on Azure.

In Agents and Infra, the largest segment, the cost of delivering the services rose about 35% while sales rose about 25%, and the segment's operating profit grew more slowly than its sales.¹ Put simply, the gross margin, what is left of each dollar of sales after the direct cost of providing the service, is getting thinner in the very part of the business that is growing fastest. If that continues, faster sales will translate into proportionally less profit.

The quarter's charge for wear on equipment and buildings rose about 44% from a year earlier, to $11.7 billion from $8.1 billion, more than twice as fast as sales.¹ Net property and equipment grew to $346.8 billion from $313.1 billion at the end of June, in three months alone.¹ Every dollar spent on data centres today becomes a charge against profit for years, so Microsoft has to earn enough from the new capacity to cover it.

What to watch

The question this quarter leaves open is whether the enormous spending on capacity will be matched by demand that pays for it. The most useful early evidence is what Microsoft's big business customers and the companies building AI products say they plan to spend on computing power. Their spending plans move before Microsoft's sales do, so they tell the two outcomes apart early: if those plans keep rising, the new data centres have users waiting; if they are trimmed, the capacity being built would run ahead of the demand to fill it.

The second signal is the signed commitments themselves. Watch for reports of contracts being cut back, delayed or cancelled, and for any sign that the largest customers are spreading their work to rival cloud providers. A pile of promises only matters if it holds, and cancellations would show up long before any shortfall in sales.

The third is the price of computing power in the market. If what companies pay to rent processing capacity holds up, the faster rise in delivery costs in Agents and Infra is more likely the cost of building quickly; if prices fall as more capacity arrives across the industry, it points to pressure that will last. The next results are the next check on whether these trends hold.

Our verdict on the quarter

In all, a strong report. Cloud sales grew fast, Azure faster still, and the signed future business gives Microsoft a clearer view than most companies have of the demand to come, while cash from running the business comfortably exceeded profit. Against that sit rising building costs, delivery costs outpacing sales in its largest segment, and a shrinking PC business. With no forecast to judge, the quarter stands on what it showed: a business growing quickly and paying heavily to keep doing so.

Notes

1. Microsoft's results release, 28 October 2026: sec.gov. ↩
2. Nasdaq's earnings calendar, 28 October 2026. ↩