Microsoft Q1 FY2027: $92.3B of revenue, above its own outlook, as cash capex doubled to $39.4B

Microsoft sells cloud capacity (Azure), Microsoft 365 and GitHub subscriptions, business applications, Windows licences, XBOX and search advertising. From this quarter it reports them in two segments instead of three: Agents and Infra, which holds the Microsoft Cloud, licensing and consulting, and Devices and Consumer, which holds Windows, XBOX and advertising. It also now discloses Azure revenue in dollars rather than only as a growth rate. The September presentation that announced the change, filed as an 8-K exhibit, restated fiscal 2026 on the new basis and adjusted the Q1 outlook to match, so for once the outlook figures sit in an SEC filing and the quarter can be checked against them.

On that test the quarter was strong, and the release shows Azure’s constant-currency growth at 48%, the same as reported. The tension is underneath it. Commercial remaining performance obligation, the contracted revenue Microsoft has not yet recognised, was $677 billion, a billion dollars less than at June 30, after rising by about $51 billion in the previous quarter (our arithmetic). Meanwhile cash additions to property and equipment doubled from a year earlier. Revenue is accelerating on capacity already built; whether the backlog that pays for the next round keeps growing is the open question.

Microsoft Q1 FY2027 results at a glance

Microsoft’s fiscal year ends June 30, so the quarter to September 30 is fiscal Q1 2027.

	Q1 FY27	Q4 FY26	Q1 FY26
Revenue	$92,279M	$90,007M	$77,673M
Operating income	$45,915M	$40,603M	$37,961M
Operating margin (our arithmetic)	49.8%	45.1%	48.9%
Net income	$36,629M	$35,766M	$27,747M
Diluted EPS (GAAP)	$4.92	$4.81	$3.72
Diluted EPS (non-GAAP, ex OpenAI)	$4.89	$4.74	$4.13
Azure revenue (restated basis)	$33,165M	$29,417M	$22,384M
Azure growth	48%	42%	40%
Commercial RPO	$677B	$678B	n/a
Net cash from operations	$58,000M	$55,441M	$45,057M
Additions to property and equipment	$39,367M	$35,802M	$19,394M

The Q4 FY26 and Q1 FY26 Azure figures are the restated ones from the September presentation; under the old definition Q4 FY26 growth was 43%. The new Azure excludes GitHub cloud, Security Copilot (both moved to Microsoft 365 commercial cloud) and Healthcare and Life Sciences cloud (moved to Industry solutions).

Agents and Infra revenue was $76,795 million, up 25%, with operating income of $40,558 million, about 88% of the company total (our arithmetic). Devices and Consumer revenue was $15,484 million, down 3%, with operating income of $5,357 million. Microsoft Cloud revenue was $63.9 billion, up 30%, against $59.3 billion in Q4. CFO Amy Hood says in the release that “results exceeded expectations across revenue, operating income, and earnings per share.”

How did Q1 compare with Microsoft’s filed outlook?

The September 2 presentation (Form 8-K, Exhibit 99.1) gave a Q1 outlook mechanically adjusted for the new segments. Against it:

Line	Filed outlook	Reported
Revenue	$89.85B–$90.95B	$92.28B
Agents and Infra revenue	$75.15B–$75.75B	$76.80B
Devices and Consumer revenue	$14.7B–$15.2B	$15.48B
Cost of revenue	$29.6B–$29.8B	$29.72B
Operating expenses	$16.8B–$16.9B	$16.64B
Azure growth (constant currency)	44%–45%	48% (48% as reported)
Effective tax rate	about 20%	20.3% (our arithmetic)

Revenue landed about $1.33 billion above the top of the range (our arithmetic), most of it in Agents and Infra. Cost of revenue was inside its range and operating expenses below theirs, so the extra revenue fell almost straight to operating income. The outlook said the operating margin would be “relatively flat year-over-year”; it rose by about 0.9 points (our arithmetic). The presentation also guided capital expenditures to “over $50 billion including the impact of the useful life update.” Neither the release nor the 10-Q states a capital-expenditure total on that basis, so this piece does not score that line (see the capex section).

How much did the OpenAI stake move EPS?

Much less than a year ago. Net gains from investments in OpenAI added $207 million to net income and $0.03 to EPS, per the release; the 10-Q puts the pre-tax gain at $272 million. A year earlier the same line was a $3.1 billion loss, $0.41 per share. That swing is why GAAP EPS grew 32% while non-GAAP EPS, which excludes OpenAI, grew 18%.

Total other income was only $38 million, against a $3,660 million expense a year earlier. Unlike Q4 FY26, when a $3.2 billion Anthropic gain sat inside both EPS figures, the Q1 release names no other large investment gain. So this quarter’s $4.89 non-GAAP EPS is close to an operating figure.

Why did the margin widen while Azure grew fastest?

Azure carries a lower gross margin than Microsoft’s software, so faster Azure growth pulls the mix down. The 10-Q says the Microsoft Cloud gross margin percentage decreased to 66%, “driven by sales mix shift to Azure, offset in part by product-level margin improvements, primarily in Azure.” Agents and Infra’s own margin was about 52.8%, against 53.1% a year earlier (our arithmetic).

The company-level margin rose anyway, because operating expenses grew only 6% while revenue grew 19%. Sales and marketing was flat at $5,716 million, and the 10-Q says total headcount decreased 2%. Devices and Consumer also helped: its revenue fell, but its operating income rose to $5,357 million from $5,243 million, a margin of about 34.6% against 32.8% (our arithmetic). Windows OEM and devices revenue fell 22%, in line with the “decline in low-twenties” in the outlook, while search and advertising excluding traffic acquisition costs grew 12%.

Cash capex doubled to $39.4B

Cash additions to property and equipment were $39,367 million, up about 103% from a year earlier and about 10% from Q4 (our arithmetic), or about 43% of revenue. Net cash from operations rose to $58,000 million, so free cash flow, measured as operating cash less those additions, was about $18.6 billion against about $25.7 billion a year earlier, down about 27% (our arithmetic; the release does not report free cash flow).

Cash additions are not the whole build-out. The 10-Q shows $5,192 million of right-of-use assets obtained under finance leases in the quarter, which with the cash additions comes to about $44.6 billion (our arithmetic, mixing a cash measure and a lease-asset measure). Leases signed but not yet commenced, “primarily for datacenters,” rose to $364.6 billion from $329.1 billion at June 30 (per the fiscal 2026 Form 10-K), starting between fiscal 2027 and 2034. Depreciation expense was $11.1 billion, up from $7.1 billion a year earlier, about 56% more (our arithmetic), and it will keep rising as that capacity comes into service.

Cash, cash equivalents and short-term investments fell to $64.5 billion from $76.8 billion at June 30. Microsoft returned $10.2 billion to shareholders in dividends and buybacks and repaid $4,850 million of debt.

Did the backlog keep growing?

Not this quarter. Commercial RPO was $677 billion, against $678 billion at June 30 and $627 billion at March 31. Its year-over-year growth slowed to 73% from 84% in Q4. The 10-Q says the commercial RPO has a weighted average duration of about 2.3 years and that about 30% of it, roughly $203 billion (our arithmetic), should be recognised over the next 12 months.

A flat quarter does not mean demand fell: RPO is drawn down as revenue is recognised, and Q1 recognised $63.9 billion of Microsoft Cloud revenue, against $59.3 billion in Q4. By our reading, net additions to the commercial backlog were about flat in the quarter. The filings do not break the backlog down by customer, so how much of the $677 billion sits with OpenAI or any other single buyer cannot be determined from them.

What to watch in Q2 FY2027

• Commercial RPO. One flat quarter after a $51 billion increase. Another flat or lower print would change the capacity story; a return to growth would make Q1 look like timing.
• Azure at 48%. This was above the 44%–45% constant-currency outlook. The next outlook, given on the call rather than in a filing, is not used here; the Q2 release will show whether growth held.
• Depreciation against the margin. Depreciation grew 56% while operating expenses grew 6%. The margin held because revenue outran both.
• Capex on Microsoft’s own definition. The outlook counted capex including finance leases; the filings give the two pieces but not the total.
• Leases not yet commenced. $364.6 billion and rising. As they commence, they become finance-lease assets and interest cost.

Quick answers

Was Microsoft’s Q1 FY2027 above its own outlook?

On revenue, yes. Against the outlook it filed on September 2, revenue was $92.28 billion against a range of $89.85 billion to $90.95 billion, with both segments above their ranges and Azure growth of 48% in constant currency against 44% to 45%. The comparison is with the company’s own filed outlook only.

What was Microsoft’s EPS in Q1 FY2027?

GAAP diluted EPS was $4.92, up 32% from $3.72. Excluding $0.03 of net gains from its OpenAI investment, non-GAAP diluted EPS was $4.89, up 18% from $4.13.

How much did Azure make in Q1 FY2027?

Azure revenue was $33,165 million, up 48% from $22,384 million a year earlier on the restated basis. Microsoft now reports Azure revenue in dollars under the new disclosure; the new definition excludes GitHub cloud, Security Copilot and Healthcare and Life Sciences cloud.

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Sources and method. The income statement, segment results, product and service revenue, investor metrics (Microsoft Cloud, Azure and Microsoft 365 growth, commercial RPO, search and Windows growth), the OpenAI non-GAAP reconciliation, the balance sheet, the cash flows, the capital returned and the Hood quotation come from Exhibit 99.1 to the Form 8-K filed 2026-10-28 (accession 0001193125-26-436122) for the quarter ended 2026-09-30, read directly from SEC EDGAR and linked above. The filing was accepted at 4:04 pm ET on October 28, after the US market closed; the release scheduled its call for 5:30 p.m. ET. Depreciation expense, the Microsoft Cloud gross margin percentage, headcount, RPO duration and recognition, finance-lease assets, leases not yet commenced and the pre-tax OpenAI gain come from the Form 10-Q filed the same day (accession 0001193125-26-436133). The segment change, the restated fiscal 2026 Azure and segment figures and the adjusted Q1 outlook come from the September 2 presentation (Form 8-K, Exhibit 99.1, accession 0001193125-26-380280), which carries its text alongside the slide images. Q4 FY2026 comparatives come from the July 29 release (accession 0001193125-26-323632), and the June 30 leases-not-yet-commenced figure from the fiscal 2026 Form 10-K (accession 0001193125-26-323660).

No consensus estimate is included, so this piece makes no claim that the quarter beat or missed expectations; the only comparisons are with Microsoft’s own filed outlook and with prior periods. Outlook figures given on the October 28 call are not in a filing and are not used. This piece makes no claim about the share-price reaction.

Our arithmetic, labelled as such: operating margins of 49.8%, 45.1% and 48.9% and the 0.9-point year-over-year change; Agents and Infra’s 88% share of operating income and its 52.8% and 53.1% margins; Devices and Consumer margins of 34.6% and 32.8%; the effective tax rate of 20.3% ($9,324 million of tax on $45,953 million of pre-tax income); revenue $1.33 billion above the top of the outlook; the roughly $51 billion RPO increase in Q4 ($678 billion less $627 billion); cash capex up 103% from a year earlier and 10% from Q4, and 43% of revenue; free cash flow of about $18.6 billion, $25.7 billion a year earlier, and the 27% decline; the $44.6 billion of cash additions plus finance-lease assets; the 56% rise in depreciation; and the $203 billion of commercial RPO expected within 12 months. These are approximations built on the disclosed figures, not reported numbers. The 19%, 21%, 25%, 3%, 30%, 32%, 18%, 48%, 73%, 22%, 12% and 6% growth rates are as printed in the release or the 10-Q. The interpretation (that revenue is running ahead on capacity already built while the backlog paused, and that the margin held because operating expenses barely grew) is our analysis, not a company statement, and is not a forecast.

Related: Microsoft Q4 FY2026, the prior quarter; Meta Q2 2026, Amazon Q2 2026 and Apple Q3 FY2026, the other big-tech reports we cover; and CoreWeave Q2 2026, which also sells AI compute capacity.