Microsoft Q1 Earnings: Azure Grows 48%, Capex Below Guidance, Free Cash Flow Remains Positive

US tech giant Microsoft released its financial results for the first quarter of fiscal year 2027 (ended September 2026) on October 28, 2026. The report showed revenue reaching $92.3 billion, up 19% year-over-year, and net profit jumping 32% to $36.6 billion, both beating Wall Street expectations.

Azure cloud computing revenue, a key metric for investors, grew 48% to $33.2 billion, significantly outpacing the approximately 45% growth analysts had previously expected. This figure is viewed as the clearest sign that Microsoft's massive artificial intelligence infrastructure investments are translating into actual sales. Although the company spent $45.2 billion on capital expenditures, including data centers, during the quarter—an increase of about 30% from $34.9 billion a year earlier—this amount fell below the "more than $50 billion" guidance provided to investors in July.

Despite the heavy spending, Microsoft maintained healthy cash flow. Free cash flow for the quarter was $18.6 billion, down 28% year-over-year but still positive. This contrasts with recent reports from Meta, which saw its stock fall after raising spending forecasts and reporting negative free cash flow. Microsoft CFO Amy Hood had previously stated that the company expected to remain free cash flow positive throughout fiscal year 2027.

Additionally, Microsoft reported results under new business groupings for the first time, combining Azure with business software like Excel, Teams, and Copilot into an "Agent and Infra" segment, which saw revenue rise 24% to $76.8 billion. Following the news, Microsoft shares rose about 4% in after-hours trading. However, some "neocloud" companies dependent on Microsoft's compute demand, such as CoreWeave and Nebius, saw their stocks drop due to the lower-than-expected capital expenditure figures.