Microsoft Azure growth hits 48% as cloud beats and capex undershoots

On a night when Alphabet sank, Microsoft gave AI investors what they wanted. Microsoft Azure growth reached 48% in the September quarter, above the company's own 44% to 45% guidance, and shares rose between 2% and 4% in extended trading on Wednesday.

What happened

Revenue in Microsoft's fiscal first quarter rose 19% to $92.28 billion, ahead of LSEG's $90.69 billion estimate, according to CNBC. Adjusted earnings were $4.89 a share versus $4.73 expected. GAAP net income climbed to $36.63 billion, or $4.92 a share; the company's release says net gains on its OpenAI investment added $207 million. Microsoft Cloud revenue grew 30% to $63.9 billion, the company said.

For the first time Microsoft put a dollar figure on Azure: $33.17 billion in the quarter, above the $32.32 billion StreetAccount estimate. Azure is now its biggest single business. The company also reported under two new segments. Agents and Infra, which includes Azure and Microsoft 365 cloud, grew almost 25% to $76.8 billion, while Devices and Consumer slipped 3% to $15.48 billion as memory costs pushed up PC prices.

Capital expenditures, including finance leases, were $45.2 billion, up about 30% but below Microsoft's own outlook of more than $50 billion. CFO Amy Hood said some third-party capacity deliveries slipped into the second half. Free cash flow fell 27% to $18.63 billion, CNBC said.

Demand indicators stayed strong. Commercial remaining performance obligation, the backlog of contracted business, rose 73% to $677 billion, according to the release, and $10.2 billion went back to shareholders via dividends and buybacks. Chief executive Satya Nadella said the number of people using Microsoft 365 Copilot rose 50% from the previous quarter.

Why it matters

The comparison with peers is stark. Alphabet reported more than $9 billion of negative free cash flow the same evening, and Meta said last week its cash flow had turned negative. Microsoft, by contrast, still funds its buildout from operations, and Hood said it will keep generating free cash flow through fiscal 2027 while tapping debt markets when attractive. That matters as AI financing gets more creative, from the Broadcom Anthropic SPV to neocloud deals such as Microsoft's own Nscale Loughton contract.

Hood guided for 49% to 50% constant-currency Microsoft Azure growth in the December quarter, against 45.1% consensus, and revenue of $96 billion to $97.1 billion. About 75% of capex now goes to short-lived assets such as chips, up from half a year earlier.

What's next

Hood expects more than $50 billion of capex in the current quarter and about $170 billion for calendar 2027, with spending accelerating in the second half of the fiscal year as delayed third-party capacity arrives. Whether that capacity lands on time will shape Microsoft Azure growth into next year. The full numbers are in Microsoft's FY27 first-quarter release.