Key takeaways
- Microsoft reported $92.3 billion in revenue, up 19% from a year ago.
- Net income increased by 32% to $36.6 billion. Without OpenAI effects, it increased by 18%.
- Azure revenue increased by 48%, and Microsoft Cloud grew 30% to $63.9 billion.
- Future contracted revenue (commercial RPO) increased by 73% to $677 billion.
- Windows OEM and devices revenue decreased by 22%, and Xbox dropped by 2%.
- Microsoft almost doubled its spending on property and equipment to $39.4 billion.
- The company has returned $10.2 billion to shareholders via dividends and buybacks.
On October 28, 2026, Microsoft reported its results for the first quarter of fiscal year 2027. This quarter is for July to September 2026. The company reports better results than expected for revenue, operating income, and earnings per share.
The growth is mostly driven by Cloud and AI. Azure, Microsoft’s cloud platform, increased by 48%. The total Microsoft Cloud business brought in $63.9 billion. At the same time, Windows and Xbox sales slowed down.
This article covers the main numbers, each business segment, spending, and what the results mean for investors.
The headline numbers
Microsoft’s operating income and net income grew faster than revenue. Operating income rose to 21%, which shows the company kept costs under control while sales rose. Gross margin grew a little slower, at 17%, because data center costs pushed up the cost of revenue.
| Measure | Q1 FY27 | Q1 FY26 | Change |
| Revenue | $92.3 billion | $77.7 billion | +19% |
| Gross margin | $62.6 billion | $53.6 billion | +17% |
| Operating income | $45.9 billion | $38.0 billion | +21% |
| Net income (GAAP) | $36.6 billion | $27.7 billion | +32% |
| Diluted EPS (GAAP) | $4.92 | $3.72 | +32% |
| Diluted EPS (non-GAAP) | $4.89 | $4.13 | +18% |
Microsoft kept almost half of every revenue dollar as operating profit. Its operating margin reached about 50%, up from about 49% last year. Currency changes had only a small effect, cutting about 1 point from operating income growth.
How OpenAI affects the profit numbers
Microsoft owns a stake in OpenAI, and that investment moves its profit up or down each quarter. This year, OpenAI added a small gain of $207 million. Last year, it caused a big loss of $3.1 billion.
This difference makes GAAP profit growth look much bigger than the real business growth. So Microsoft also shares non-GAAP numbers that remove the OpenAI effect.
| Measure | GAAP | OpenAI effect | Non-GAAP |
| Net income, Q1 FY27 | $36.6 billion | −$0.2 billion | $36.4 billion |
| Net income, Q1 FY26 | $27.7 billion | +$3.1 billion | $30.8 billion |
| Net income growth | 32% | — | 18% |
| EPS, Q1 FY27 | $4.92 | −$0.03 | $4.89 |
| EPS, Q1 FY26 | $3.72 | +$0.41 | $4.13 |
| EPS growth | 32% | — | 18% |
The 18% non-GAAP growth gives a clearer view of how the core business performed. You can see the swing in “other income” too. It moved from a $3.7 billion loss last year to a $38 million gain this year.
Agents and Infra: the main growth engine
Microsoft reorganised its business into two new segments in September 2026, and it updated last year’s numbers to match. The Agents and Infra segment now brings in about 83% of total revenue.
This segment earned $76.8 billion, up 25%. Its operating income rose 24% to $40.6 billion.
| Highlight | Growth |
| Commercial remaining performance obligation ($677 billion) | +73% |
| Azure revenue | +48% |
| Microsoft Cloud revenue ($63.9 billion) | +30% |
| Microsoft 365 commercial cloud (adjusted) | +18% |
| Microsoft 365 consumer cloud | +17% |
| Industry solutions cloud | +10% |
The RPO number plays an important role. It shows money that customers have already promised to pay in the future. A 73% jump shows that there is a rise in demand for Microsoft’s cloud and AI services.
Devices and Consumer: a mixed picture
The Devices and Consumer segment earned $15.5 billion, which is 3% less than last year. Still, Microsoft’s operating income in this segment increased by 2% to $5.4 billion, because it cut costs.
| Highlight | Growth |
| Search and advertising (excluding traffic acquisition costs) | +12% |
| Xbox content and services | −2% |
| Windows OEM and devices | −22% |
Search and ads performed well. However, Windows sales to PC makers and Microsoft’s own device sales dropped sharply. Gaming also slipped a little.
Revenue by product and service
Azure is now Microsoft’s single biggest business. It earned more than $33 billion this quarter, about 36% of all revenue.
| Product or service | Q1 FY27 | Q1 FY26 | Change |
| Azure | $33.2 billion | $22.4 billion | +48% |
| Microsoft 365 cloud | $27.8 billion | $23.7 billion | +17% |
| Productivity and server licensing | $8.4 billion | $8.7 billion | −3% |
| Search and advertising | $6.6 billion | $5.9 billion | +10% |
| Xbox | $5.4 billion | $5.5 billion | −2% |
| Industry solutions | $5.3 billion | $4.9 billion | +9% |
| Windows OEM and devices | $3.6 billion | $4.6 billion | −22% |
| Frontier and support services | $2.1 billion | $2.0 billion | +4% |
| Total | $92.3 billion | $77.7 billion | +19% |
Cloud services keep replacing older one-time sales. Service revenue rose to $77.6 billion, while product revenue fell to $14.6 billion.
Spending, cash flow, and shareholder returns
Microsoft is spending heavily to build data centers for AI. It spent $39.4 billion on property and equipment this quarter, about double the $19.4 billion it spent a year ago.
| Cash measure | Q1 FY27 | Q1 FY26 |
| Cash from operations | $58.0 billion | $45.1 billion |
| Spending on property and equipment | $39.4 billion | $19.4 billion |
| Cash left after that spending | $18.6 billion | $25.7 billion |
| Dividends paid | $6.8 billion | $6.2 billion |
| Shares bought back | $4.4 billion | $5.7 billion |
A quick look at the balance sheet
Microsoft’s balance sheet stays very strong. Its total assets grew to $779.4 billion by September 30, 2026.
| Item | Sep 30, 2026 | Jun 30, 2026 |
| Cash and short-term investments | $64.5 billion | $76.8 billion |
| Property and equipment (net) | $346.8 billion | $313.1 billion |
| Total debt | $35.5 billion | $40.3 billion |
| Total assets | $779.4 billion | $758.4 billion |
| Stockholders’ equity | $470.5 billion | $442.4 billion |
Cash fell by about $12 billion as Microsoft spent heavily on data centers, paid dividends, bought back shares, and paid down debt. Property and equipment grew by almost $34 billion in just three months.
Risks and what comes next
Microsoft lists several risks in its release. These include tough competition, huge AI investments that may not pay off, cyberattacks, new laws, and limits on data center capacity. Investors will watch whether AI demand keeps up with the company’s large spending.
Microsoft did not put future guidance in the press release. Instead, its leaders shared their outlook on the earnings call on October 28, 2026.
Final thoughts
Microsoft delivered a strong first quarter. Cloud and AI pushed revenue up 19% and core profit up 18%. Azure’s 48% growth and a $677 billion backlog show that customers keep committing to Microsoft’s AI services.
The weak spots sit in Windows, devices, and Xbox. The big question now is spending. Microsoft roughly doubled its cash spending on property and equipment, so it must turn those new data centers into future revenue.