Microsoft (MSFT) Q1 2026 Earnings Report

Microsoft (MSFT) has reported a fiscal first quarter that exceeded expectations, driven by a 40% surge in revenue within its Azure cloud business. This robust performance underscores the company’s successful navigation of the evolving tech landscape, particularly its strategic alignment with the burgeoning field of artificial intelligence.

While the overall results painted a positive picture, the stock experienced a slight dip of nearly 4% in extended trading. This reaction stemmed from comments made by Chief Financial Officer Amy Hood, who indicated an anticipated acceleration in capital expenditures throughout the current fiscal year. This projection suggests a continued investment in infrastructure to support Microsoft’s expanding AI initiatives and cloud services, a move that, while financially sound in the long term, can temporarily temper investor enthusiasm.

• Earnings per share: $3.72 vs. $3.67 per share expected
• Revenue: $77.67 billion vs. $75.33 billion expected

The fiscal first quarter witnessed an 18% increase in revenue, climbing from $65.6 billion in the previous year to $77.67 billion. Net income also saw a healthy climb, rising to $27.7 billion from $24.67 billion, translating to $3.30 per share compared to last year’s figure.

Notably, Microsoft’s investment in OpenAI had a $3.1 billion impact on net income during the quarter, equivalent to a 41-cent reduction per share. This figure highlights the substantial financial commitment Microsoft has made to its partnership with the AI research and deployment company, a relationship viewed as critical to its long-term competitive advantage.

The Intelligent Cloud unit, encompassing Azure, reported a revenue of $30.9 billion, marking a 28% increase year-over-year and surpassing the StreetAccount consensus estimate of $30.25 billion. The Azure growth rate exceeded expectations, coming in at 40% against an anticipated 38.2% expansion. This signifies Microsoft’s strong position in the cloud computing arena, effectively competing with industry giants like Amazon Web Services and Google Cloud. Analysts attribute Azure’s success to its comprehensive suite of services and its ability to attract enterprises looking to modernize their IT infrastructure and leverage AI capabilities.

Cloud computing remains a significant growth driver for Microsoft, positioning the company as a key beneficiary of the AI boom. The previous quarter saw Microsoft reveal the financial scale of its Azure cloud infrastructure, disclosing over $75 billion in revenue for fiscal year 2025, a 34% increase from the prior year. This transparent reporting demonstrates the company’s confidence in its cloud offerings and allows analysts to better assess its financial performance.

Looking ahead, Microsoft anticipates revenue in the range of $79.5 billion to $80.6 billion for the fiscal second quarter. The midpoint of this range, $80.05 billion, slightly exceeds the LSEG-compiled analyst consensus of $79.95 billion, indicating a continued positive outlook.

The company projects Azure growth at constant currency to be 37% in the fiscal second quarter, aligning with current estimates. This steady growth prediction reinforces Microsoft’s expectation for sustained performance in the cloud sector.

Investors are particularly interested in Microsoft’s capital expenditure plans, given the significant infrastructure investments required to support the growing demand for AI. CFO Hood’s announcement of an accelerated capex growth rate for fiscal 2026, exceeding the rate in 2025, signals the company’s commitment to expanding its AI capabilities and cloud infrastructure to meet future demands. This aggressive investment strategy reflects Microsoft’s long-term vision and desire to maintain its competitive edge in the rapidly evolving tech landscape.

The Productivity and Business Processes segment, which includes Office productivity software and LinkedIn, generated $33 billion in revenue for the first quarter, surpassing the StreetAccount consensus estimate of $32.33 billion. This performance reflects the continued demand for Microsoft’s core business software and the increasing adoption of its professional networking platform.

The More Personal Computing unit, encompassing Windows, search advertising, devices, and video games, reported a 4% growth, resulting in $13.8 billion in revenue. This figure exceeded StreetAccount’s consensus estimate of $12.83 billion, indicating strength across various consumer-facing products and services. The gaming division, in particular, has been a consistent performer, fueled by popular franchises and subscription services.

It’s worth noting that Microsoft’s earnings report followed an Azure and 365 services outage, which impacted various websites and games for several hours. While the company anticipates a full recovery shortly, the incident serves as a reminder of the potential risks associated with relying on complex cloud infrastructure. The ability to quickly resolve such outages is crucial for maintaining customer trust and ensuring the reliability of its services.

Microsoft shares are up 28% year-to-date and reached a record high the previous day, largely attributed to its close relationship with OpenAI. This partnership has provided Microsoft with access to cutting-edge AI technology, which it has integrated into its products and services, fueling innovation and driving growth.

OpenAI recently finalized its restructuring, formally outlining Microsoft’s substantial stake in the company. Under the new structure, OpenAI’s nonprofit arm will hold a 26% stake in its for-profit entity, valued at approximately $130 billion. Microsoft’s stake is 27%, worth an estimated $135 billion, with the remaining 47% held by current and former employees and investors. This structure reflects a careful balancing act, preserving OpenAI’s mission-driven values while allowing for commercialization and attracting further investment.

Correction: This story has been updated with the EPS figure that’s comparable to analyst estimates.