Microsoft Beats Estimates as Azure Grows 48%; Capex Trails Projections

Microsoft reported fiscal first-quarter 2027 results showing Azure revenue up 48% year over year, an acceleration that leaves the cloud-infrastructure unit as the company's biggest single business, according to the company's earnings release. The quarter produced a beat on both earnings and revenue, even as capital expenditures fell short of Wall Street's projections and Microsoft trimmed its full-year spending outlook.

Azure Growth Accelerates as Microsoft Breaks Out the Number

Azure's 48% year-over-year growth marked an acceleration from the 42% rate reported in the prior, June-ended quarter, according to CNBC. The cloud unit is now Microsoft's single largest business. The growth arrived as Microsoft overhauled its reporting structure, retiring the three-segment breakdown of Azure, Office and Windows it had used for 11 years in favor of two new segments: Agents and Infra, and Devices and Consumer. In the new Agents and Infra segment, which houses Azure, revenue rose almost 25% to $76.8 billion, above the $75.63 billion consensus among analysts polled by StreetAccount, per CNBC's reporting. Devices and Consumer revenue slipped 3% to $15.48 billion but still beat the $15.05 billion StreetAccount consensus.

Company-wide, Microsoft's adjusted earnings per share came in at $4.89, topping the $4.73 LSEG/StreetAccount estimate, while revenue of $92.28 billion rose 19% year over year and exceeded the $90.69 billion Wall Street had expected, according to CNBC. GAAP net income climbed 32% to $36.63 billion, or $4.92 per share, from $27.75 billion, or $3.72 per share, a year earlier. Commercial remaining performance obligation, a measure of contracted future revenue, increased 73% to $677 billion, and Microsoft returned $10.2 billion to shareholders through dividends and buybacks during the quarter, according to the company's investor relations release.

Capex Falls Short as Microsoft Trims Its Full-Year Forecast

Despite the Azure strength, Microsoft's capital spending missed expectations. The company reported $45.2 billion in capital expenditures and finance leases for the quarter, up about 30% from a year earlier but below the $50.67 billion analysts surveyed by StreetAccount had projected, according to CNBC. Microsoft also cut its full-year capex forecast to $170 billion from a prior $175 billion, while Alphabet held its own guidance at $195 billion to $205 billion, per CNBC's coverage of the broader AI capex picture. Free cash flow declined 27% to $18.63 billion during the quarter, CNBC reported.

Reconciling the Spending Slowdown With the AI Buildout and Job Cuts

The capex shortfall arrives alongside visible cost discipline elsewhere in the company. During the fiscal first quarter, Microsoft cut 4,800 jobs, and on the Monday before its earnings report it announced buyout offers to as many as 60,000 employees, moves CNBC described as part of an effort to balance a costly AI build-out with capital efficiency. CFO Amy Hood offered a partial explanation for the capex miss on the earnings call, saying third-party providers of graphics processing units had experienced delays that will push some available capacity out until the first half of 2027, according to CNBC's reporting on the AI capex slowdown. Hood also said she expects capital spending to accelerate in the first half of 2027 because of higher component costs and those delayed GPU deliveries.

Taken together, the evidence suggests the quarter's lighter capex was driven at least in part by supply-side bottlenecks in GPU availability rather than a pullback in AI investment intent, an interpretation consistent with Hood's own comments about spending reaccelerating once component deliveries normalize. The job cuts and buyout offer appear to be running on a parallel track aimed at internal cost structure rather than the infrastructure budget itself, though Microsoft's public disclosures do not directly link the two initiatives.

Guidance for the Next Quarter

Looking ahead, Microsoft executives told investors they expect Azure to grow between 49% and 50% at constant currency in the fiscal second quarter, above the 45.1% StreetAccount consensus estimate, according to CNBC's report on analyst reaction. That guidance, combined with Hood's comments about capital spending accelerating in the first half of 2027, points to a company expecting both top-line cloud momentum and higher infrastructure costs to show up in the next several quarters.

Analyst and Market Reaction

Microsoft shares rose 4% in extended trading on Wednesday after the results and were up around 2% in premarket trading Thursday, CNBC reported. The stock had already rallied 36% over the prior three months as Microsoft continued building out data-center infrastructure to support widening artificial intelligence adoption, according to CNBC. Cantor analysts led by Thomas Blakey wrote in a Wednesday note to clients that they viewed the quarter as "further validation of Microsoft's AI-led growth opportunity," recommending the stock and raising their one-year price target to $630 from $608, per CNBC. JPMorgan said the fiscal second-quarter Azure guide squarely met the buyside bar for a further 100-200 basis points of acceleration despite some third-party GPU capacity slipping into the second half, according to CNBC. Bottom line: accelerating Azure growth and above-consensus guidance drove the beat, while the lighter capex and reduced full-year forecast track GPU supply delays that CFO Amy Hood said should push spending higher in the first half of 2027. These are reported results and company guidance, not investment advice.