October 28, 2026
Microsoft beat expectations for its fiscal first quarter on Wednesday, with Azure revenue jumping 48% to $33.17 billion — and, unlike Alphabet and Meta, it kept free cash flow strongly positive at $18.6 billion. Why it matters: on a day when heavy AI spending punished its rivals, Microsoft showed cloud growth fast enough, and spending controlled enough, to reassure investors the AI buildout is paying for itself.
What happened
Microsoft reported revenue of $92.28 billion for the quarter ended September 30, 2026, up 19% from a year earlier. Adjusted earnings were $4.89 per share, ahead of the $4.73 average estimate, and net income rose 32% to $36.6 billion on a GAAP basis. Shares rose more than 5% in after-hours trading.
The headline number was Azure. For the first time, Microsoft disclosed Azure revenue in dollars rather than only a growth rate — a change it announced last month — putting the business at $33.17 billion, above Visible Alpha’s $32.84 billion estimate and up from $29.4 billion in the prior quarter. Microsoft Cloud overall brought in $63.9 billion, up 30%, and commercial remaining performance obligations — contracted business still to be delivered — rose 73% to $677 billion.
The spending, in context
Capital expenditure rose to $45.2 billion, including finance leases, from $34.9 billion a year earlier. That is a large bill, but it came in below Microsoft’s own $50 billion projection for the quarter. The company attributed the shortfall to delayed deliveries of third-party capacity, not to a change in its spending plans.
That distinction mattered to investors. Alphabet, reporting the same afternoon, spent $51.4 billion, posted negative free cash flow of $9.07 billion, and saw its shares fall about 8% after hours despite Google Cloud revenue more than doubling. Microsoft, by contrast, generated about $10 billion more free cash flow than analysts expected.
Looking ahead, Microsoft forecast second-quarter Azure growth of 49% to 50%, above analyst estimates of 47.6%, and overall sales of $96 billion to $97.1 billion, above estimates of $95.6 billion. On the earnings call, CEO Satya Nadella said broad customer demand was replacing early, concentrated buying, with customers now planning AI spending over a decade or more.
Why it matters
For anyone buying AI tools or cloud capacity, this is the clearest signal yet that demand is broadening beyond a handful of giant customers — and that Microsoft intends to keep building ahead of it. The practical takeaway is stability: the provider behind Azure, Microsoft 365 and Copilot is funding its expansion from its own cash flow while rivals lean harder on borrowing. That does not guarantee lower prices, but it does suggest capacity — and the cheaper, smaller models Microsoft has been pushing for cost-conscious businesses — will keep coming. Everything AI, tested: the spending race is real, but so, in Microsoft’s case, is the revenue arriving to pay for it.
Frequently asked questions
How much did Azure make in Microsoft’s latest quarter?
Azure revenue was $33.17 billion in the fiscal first quarter ended September 30, 2026, up 48% year over year. It was the first quarter Microsoft disclosed Azure revenue in dollars instead of only a growth rate.
How much did Microsoft spend on AI infrastructure?
Capital expenditure was $45.2 billion in the quarter, including finance leases, up from $34.9 billion a year earlier but below the company’s own $50 billion projection, which it blamed on delayed third-party capacity deliveries.
Why did Microsoft’s stock rise while Alphabet’s fell?
Both companies are spending heavily on AI, but Microsoft kept free cash flow positive at $18.6 billion while Alphabet’s turned negative at -$9.07 billion. Investors rewarded Microsoft’s combination of faster cloud growth and spending that came in under forecast.
What did Microsoft forecast for next quarter?
Microsoft forecast Azure growth of 49% to 50% in its fiscal second quarter and overall sales of $96 billion to $97.1 billion, both above analyst estimates.
Sources: Reuters, Microsoft fiscal Q1 2027 earnings release (via Securities.io)