Microsoft FY27 Q1 earnings: Azure soars 48% as revenue hits $92.3 billion

Microsoft FY27 Q1 earnings delivered another big quarter for its cloud business, with revenue reaching $92.3 billion and Azure growing 48%. But the results also highlighted a widening divide between Microsoft’s booming business services and its struggling consumer products.

For the quarter ended September 30, 2026, Microsoft reported revenue growth of 19%, while operating income rose 21% to $45.9 billion. Net income reached $36.6 billion, up 32%, with diluted earnings per share climbing to $4.92.

The biggest growth engine was Azure, which generated $33.2 billion in quarterly revenue. Microsoft Cloud revenue reached $63.9 billion, up 30%.

Windows OEM and devices revenue went the other way, dropping 22%, while XBOX content and services revenue declined 2%.

Microsoft announced the results on October 28 in its FY27 Q1 earnings release. The company also confirmed that its financial results were available through its Investor Relations website.

Microsoft FY27 Q1 earnings at a glance

Microsoft’s first quarter of fiscal year 2027 covered the three months ended September 30, 2026. All growth figures below compare with the same period a year earlier.

Metric	FY27 Q1 result	Year-over-year change
Total revenue	$92.3 billion	Up 19%
Operating income	$45.9 billion	Up 21%
Net income, GAAP	$36.6 billion	Up 32%
Diluted earnings per share, GAAP	$4.92	Up 32%
Adjusted net income	$36.4 billion	Up 18%
Adjusted diluted earnings per share	$4.89	Up 18%
Microsoft Cloud revenue	$63.9 billion	Up 30%
Azure revenue	$33.2 billion	Up 48%

“We delivered a strong start to the fiscal year with Microsoft Cloud revenue of $63.9 billion, with growth accelerating to 30%,” Microsoft CFO Amy Hood said in the release.

Hood added that results exceeded the company’s expectations for revenue, operating income, and earnings per share.

Azure and Microsoft Cloud keep doing the heavy lifting

Azure revenue increased from $22.4 billion to $33.2 billion, making it the fastest-growing category in Microsoft’s disclosed product and service revenue breakdown.

Microsoft also reported commercial remaining performance obligations of $677 billion, up 73%. That represents contracted revenue the company has yet to recognize—not revenue earned entirely during this quarter.

The cloud-led results continue a theme covered in our Microsoft FY26 Q2 earnings report, when Microsoft reported $81.3 billion in revenue and Microsoft Cloud revenue of $51.5 billion. That earlier report also highlighted the tension between strong cloud demand and the cost of expanding Microsoft’s infrastructure.

CEO Satya Nadella framed the latest quarter around helping customers build and manage their own AI capabilities.

“We are delivering greater capability, choice, control, and cost efficiency for customers across our entire stack,” Nadella said.

“By helping organizations build and own their own intelligence, and earning trust through agent safety and security, we are translating our innovation into growing adoption and real-world impact across every industry.”

Microsoft did not disclose a standalone Copilot revenue figure in the release. That means the results show strong growth across its cloud business without establishing exactly how much revenue came directly from Copilot subscriptions.

Microsoft 365 delivers another solid quarter

Microsoft 365 remained another important source of growth.

Combined Microsoft 365 cloud revenue reached $27.8 billion, compared with $23.7 billion a year earlier.

Microsoft reported:

• Microsoft 365 commercial cloud revenue growth of 17%.
• Adjusted commercial cloud growth of 18%, after normalizing for a one-percentage-point revenue-recognition benefit in the prior-year quarter.
• Microsoft 365 consumer cloud revenue growth of 17%, or 16% in constant currency.

The distinction between reported and adjusted commercial growth matters here. Microsoft is accounting for a benefit in last year’s comparison period, rather than presenting two different measures of current-quarter sales.

Industry solutions cloud revenue also increased 10%.

Windows and devices revenue falls 22%

Microsoft’s Windows OEM and devices business had a much tougher quarter.

Revenue fell to $3.6 billion, down from $4.6 billion a year earlier—a 22% decline.

There is an important limitation to that number: Microsoft reports Windows OEM and devices together. The release does not separate Surface revenue from Windows licensing revenue, so it would be inaccurate to describe the result as a 22% drop in Surface sales.

The company also did not provide a detailed explanation for the decline in the supplied release. The numbers alone do not establish whether PC demand, product timing, channel inventory, or another factor drove the change.

Search and advertising was a brighter spot. Revenue excluding traffic acquisition costs increased 12%, while total search and advertising revenue reached $6.6 billion.

XBOX revenue slips, with no new Game Pass subscriber count

XBOX content and services revenue declined 2%, or 1% when excluding foreign-exchange effects.

Total XBOX revenue was $5.4 billion, compared with $5.5 billion a year earlier.

Microsoft did not disclose an updated Game Pass subscriber count or a separate XBOX hardware growth rate in the release. As a result, the report shows a modest decline in the overall XBOX business without providing enough detail to isolate the performance of subscriptions, individual games, or console hardware.

For readers following Microsoft’s consumer products, that leaves a mixed picture: search advertising grew, but Windows, devices, and XBOX did not share in the cloud business’s momentum.

New reporting segments reshape the earnings breakdown

Microsoft presented its results under two reporting segments: Agents and Infra, and Devices and Consumer.

The company said it recast prior-year results to reflect changes to its reporting segments announced in September 2026.

Segment	Revenue	Revenue growth	Operating income
Agents and Infra	$76.8 billion	Up 25%	$40.6 billion
Devices and Consumer	$15.5 billion	Down 3%	$5.4 billion

Agents and Infra accounted for most of Microsoft’s revenue and operating profit.

Devices and Consumer generated less revenue than a year earlier, but operating income still increased from $5.2 billion to $5.4 billion as its reported costs and operating expenses declined.

Readers comparing these results with older earnings coverage should use Microsoft’s recast figures for segment-level comparisons. The reporting structure has changed, so the new segment totals should not be treated as direct equivalents of the old categories.

OpenAI investment effects boosted reported profit growth

Microsoft’s 32% increase in reported net income comes with an important accounting detail.

This quarter, Microsoft recorded a $207 million net gain from its OpenAI investments. In the same quarter last year, those investments produced a roughly $3.1 billion net loss.

Moving from a substantial loss to a smaller gain helped lift the year-over-year growth rate for reported earnings.

Excluding the OpenAI investment effects in both periods:

• Adjusted net income increased 18% to $36.4 billion.
• Adjusted diluted earnings per share increased 18% to $4.89.

Microsoft’s operating business still delivered higher profits. The adjusted figures simply remove a significant investment-related difference between the two quarters.

For more background on that relationship, see our coverage of Microsoft and OpenAI’s AI partnership.

Infrastructure spending nearly doubles

Microsoft generated $58 billion in operating cash flow, up from $45.1 billion a year earlier.

Cash spending on additions to property and equipment reached $39.4 billion, compared with $19.4 billion in the prior-year quarter. That is slightly more than double.

The cash-flow statement does not identify all of that spending as AI-specific investment, so the full amount should not be labeled an “AI spending” total. It nevertheless shows the scale of Microsoft’s investment in physical infrastructure and equipment.

That balance between growth and spending has become a recurring earnings theme. Our earlier FY26 Q2 coverage examined how infrastructure costs remained a focus even as Microsoft posted strong cloud results.

What comes next for Microsoft

Microsoft said it would provide forward-looking guidance during its earnings conference call, scheduled for October 28 at 2:30 p.m. Pacific, or 5:30 p.m. Eastern. Microsoft’s official announcement confirms that timing.

The key questions are how much additional infrastructure spending Microsoft expects, whether Azure can sustain its growth, and what management says about the weaker Windows, devices, and XBOX results.

Microsoft has been building toward this cloud-heavy business mix for years. Our coverage of Microsoft’s move past a $4 trillion market valuation following its FY25 Q4 earnings documented another point when Azure growth helped put the company’s financial performance in the spotlight.

This quarter, the contrast is particularly clear: Microsoft’s cloud business is expanding rapidly enough to drive strong companywide growth, even as several of its best-known consumer businesses lose ground.