Business 5 min read By Callum Montgomery
Microsoft Beats Forecasts as Azure Cloud Revenue Jumps 48%
Microsoft reported quarterly revenue above analysts' expectations thanks to rapid growth in its Azure cloud business, while the company continues to increase spending on AI infrastructure.
Microsoft reported first-quarter results that beat Wall Street expectations: revenue reached $92.3 billion, up 19% from a year earlier, and profit hit $36.6 billion. The main driver was the Azure cloud service, whose revenue grew 48%, ahead of analysts' estimates. The company's shares rose about 2.5% in after-hours trading.
Investors closely watched whether Azure could sustain its high growth rate and whether Microsoft could prove that its AI bets, including the Copilot assistant, are generating sustainable revenue. Both metrics are important because they help gauge whether demand for AI services is holding up overall, especially as technology giants spend enormous sums building data centers.
Chief Financial Officer Amy Hood told analysts that Microsoft's capital expenditures in calendar 2026 will be about $170 billion, and will exceed $50 billion in the current quarter. In the first quarter, capital spending reached $45.2 billion, more than in the previous quarter but less than analysts had forecast. According to Hood, the figure reflects delays in capacity deliveries from third-party suppliers. "We still have demand that exceeds supply," she said.
For the current quarter, Microsoft expects revenue in the range of $96.0 billion to $97.1 billion, above analysts' forecasts. At the same time, operating margin is expected to decline slightly on a year-over-year basis. Hood also said the company expects to maintain positive free cash flow in fiscal 2027.
Microsoft is one of the so-called hyperscalers that are investing massively in computing capacity for AI. Amazon, Microsoft, Alphabet, the parent company of Google, and Meta Platforms are estimated to spend more than $700 billion collectively on capital expenditures in 2026, mostly on data centers. Last week, Meta reported that its capital spending this year could rise to $145 billion, and its quarterly free cash flow turned negative, which led to a drop in its shares. On Wednesday, Alphabet reported growth in its cloud division but weaker results in advertising.
Microsoft did not disclose specific Copilot sales figures, but CEO Satya Nadella said the number of Copilot customers actively using consumption-based credits grew more than 75% over the quarter. In its previous report, the company cited 30 million paid Copilot seats, compared with 20 million the quarter before. Investors had long worried about the slow start of this business. Microsoft recently turned Copilot into a "super app" covering programming, chat, and autonomous functions, and introduced new Windows features for working with AI agents.
The company has benefited from the AI boom primarily through cloud computing, which helps AI companies train models and deliver them through Azure. However, it has had to work hard to bring computing capacity online and to balance the needs of partners with its own proprietary models. This week, the AI company Anthropic published a prospectus ahead of a planned initial public offering, which shows that Microsoft and other hyperscalers are gaining significantly from this lab's needs. Anthropic has committed to spend at least $44.9 billion on Microsoft's computing from November of this year through May 2033, regardless of actual usage.
The report came amid major changes at the 51-year-old company. This week, Microsoft offered buyout programs to about 60,000 employees, roughly 27% of its workforce, as part of a company-wide shift to AI that is forcing cost cuts. Employees must accept the offer by the first week of December, but the company expects fewer than 10% of workers to accept it. In July, Microsoft cut about 4,800 jobs, and in 2025 it laid off more than 15,000 people. Many of the recent cuts have hit the troubled Xbox division, which is dragging down overall financial results. On Wednesday, the company reported that Xbox content and services revenue fell 2%, while hardware revenue dropped 14%. Windows OEM and devices revenue declined 22%. For the current quarter, Microsoft expects Xbox content revenue to grow in the mid-to-high single digits, thanks to new game releases, including Call of Duty: Modern Warfare 4, which came out last week.
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