stockrowLatest quarter
Microsoft reported Q1 FY2027 revenue of $92.3 billion, above the $90.6 billion consensus. Adjusted earnings per share were $4.89, above the consensus of $4.71. Revenue rose 18.8% from $77.7 billion a year earlier, while diluted EPS rose to $4.92 from $3.72.
The company’s filing said Azure demand drove growth in Agents and Infra, while Devices and Consumer revenue declined. Azure revenue increased 48.0%; Microsoft 365 commercial cloud revenue grew as higher revenue per user and usage-based services added to seat growth. Windows OEM and devices revenue fell, which the filing attributed partly to a prior-year boost from Windows 10 end-of-support demand and inventory drawdowns.
Microsoft’s gross margin fell to 67.8% from 69.0%, while its operating margin rose to 49.8% from 48.9%. The filing said the shift in sales mix toward Azure reduced Microsoft Cloud’s gross margin percentage, partly offset by product-level improvements. Free cash flow fell to $18.6 billion from $25.7 billion; CFO Amy Hood said it reflected higher capital expenditures.
| Q1 FY2027 | Q1 FY2026 | Change | |
|---|---|---|---|
| Revenue | $92.3 billion | $77.7 billion | 18.8% |
| Diluted EPS | $4.92 | $3.72 | 32.2% |
| Gross margin | 67.8% | 69.0% | −1.3 percentage points |
| Operating margin | 49.8% | 48.9% | 0.9 percentage points |
| Free cash flow | $18.6 billion | $25.7 billion | −27.4% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $4.89 | $4.71 | Beat by 3.82% |
| Revenue | $92.3 billion | $90.6 billion | Beat by 1.88% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
What management said on the call
CEO Satya Nadella said Azure growth spanned businesses of different sizes and both core cloud services and AI infrastructure. CFO Amy Hood said Azure exceeded expectations despite delayed third-party capacity deliveries. She attributed the result to Foundry and improvements that let Microsoft monetize underused CPU capacity.
Asked about the drivers of future growth, Hood said engineering improvements allowed Microsoft to allocate more capacity to Foundry, where “we still have demand that exceeds supply.” She said the gains would continue into the next quarter, but Microsoft also needed further improvements because some expected supply had moved into the second half. Hood added that “token pricing will create a little bit of variability” and said pricing had been higher than expected in the quarter.
Nadella said Foundry had more than 120,000 customers and that its revenue more than tripled year over year. He described customers choosing among models, routing tasks between them or training their own, depending on their needs and pricing. He said Microsoft wanted its products to give customers options rather than tie them to a single model.
In productivity, Nadella said Microsoft was adding consumption charges alongside Copilot subscriptions. Hood said GitHub Copilot adoption and usage helped Microsoft 365 Commercial Cloud results, although weaker sales execution affected E3 and stand-alone products. She said Microsoft was adjusting its sales approach to balance traditional per-seat products with premium and usage-based offerings.
Hood said capital expenditure was $45.2 billion in the quarter, with roughly three-quarters going to shorter-lived assets, primarily CPUs and GPUs. She said the Microsoft Cloud gross margin percentage declined as sales shifted toward Azure, partly offset by product-level improvements. On operating margins, Hood said revenue growth and platform efficiency gains contributed to the quarter’s result.
Guidance
For Q2 FY2027, Hood said Windows OEM and devices revenue should decline in the mid-30s, with the trends affecting it continuing through the rest of the fiscal year. Microsoft had previously expected a high-teens decline for FY2027.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| Free cash flow | FY2027 | Microsoft expects to remain free cash flow positive in FY2027. | Microsoft expects to remain free-cash-flow positive in FY2027. | — |
| Capex | Q2 FY2027 | $50.0 billion | — | New |
| Tax rate | Q2 FY2027 | 20.0% | — | New |
| Operating margin | Q2 FY2027 | Microsoft expects its operating margin to decline slightly year over year in Q2 FY2027. | — | — |
| Operating expenses | Q2 FY2027 | $18.5 billion–$18.6 billion | — | New |
| Revenue | Q2 FY2027 | $96.0 billion–$97.1 billion | — | New |
| Revenue, Xbox Hardware | Q2 FY2027 | Microsoft expects Xbox hardware revenue to decline year over year in Q2 FY2027. | — | — |
| Revenue, Xbox Content and Services | Q3 FY2027 | Microsoft expects Xbox Content and Services revenue growth to decelerate in Q3 FY2027. | Q2 FY2027: Microsoft expects Xbox Content and Services revenue growth in the mid-to-high single digits in Q2 FY2027. | — |
| Revenue, Xbox Content and Services | Q2 FY2027 | Microsoft expects Xbox Content and Services revenue growth in the mid-to-high single digits in Q2 FY2027. | — | — |
| Revenue, Search and Advertising Ex Tac | Q2 FY2027 | Microsoft expects search and advertising revenue excluding traffic acquisition costs to grow in the low double digits in Q2 FY2027. | — | — |
| Revenue, Devices and Consumer | Q2 FY2027 | $15.9 billion–$16.4 billion | — | New |
| Gross margin, Microsoft Cloud | Q2 FY2027 | 65.0% | — | New |
| Revenue, Frontier and Support Services | Q2 FY2027 | Microsoft expects Frontier and Support Services revenue to grow in the low to mid-single digits in Q2 FY2027. | — | — |
| Revenue, Industry Solutions Cloud | Q2 FY2027 | Microsoft expects Industry Solutions Cloud revenue growth in the mid-to-high single digits in Q2 FY2027. | — | — |
| Revenue, Productivity and Server Licensing | Q2 FY2027 | Microsoft expects productivity and server licensing revenue to decline in the mid-to-high single digits in Q2 FY2027. | — | — |
| Revenue, M365 Consumer Cloud | Q2 FY2027 | Microsoft expects M365 Consumer Cloud revenue to grow in the low teens in Q2 FY2027. | Q1 FY2027: Microsoft expects M365 consumer cloud revenue to grow in the mid-teens in Q1 FY2027. | — |
| Revenue, M365 Commercial Cloud | FY2027 | Microsoft expects M365 Commercial Cloud revenue growth to accelerate through FY2027. | — | — |
| Bookings, Commercial Sales Motions | Q2 FY2027 | Microsoft expects healthy growth in commercial sales motion bookings in Q2 FY2027, tempered by prior-year Azure commitments. | — | — |
| Revenue, Agents and Infra | Q2 FY2027 | $80.1 billion–$80.7 billion | — | New |
| Tax rate | FY2027 | 20.0% | — | New |
| Operating margin | FY2027 | Microsoft expects full-year operating margins to be down less than one point in FY2027. | — | — |
| Capex | FY2027 | Microsoft expects capital expenditures to grow year over year in FY2027. | — | — |
| Operating expenses | FY2027 | Microsoft expects operating expenses to grow in the mid- to high-single digits in FY2027. | — | — |
| Revenue | FY2027 | Microsoft expects double-digit revenue growth in FY2027. | — | — |
| Revenue, Windows Oem and Devices | FY2027 | Microsoft expects Windows OEM and devices revenue to decline in the high teens for FY2027. | — | — |
| Revenue, M365 Commercial Products | FY2027 | Microsoft expects M365 commercial products revenue to decline in the mid-single digits for FY2027. | — | — |
| Revenue, Xbox | FY2027 | Microsoft expects Xbox to return to growth in FY2027. | — | — |