MSFT after its Q1 FY27 call
First-quarter revenue and non-GAAP earnings per share beat our forecast: Q1-FY2027 sales, reported against our forecast: +0.4% Q1-FY2027 adjusted EPS, reported against our forecast: +1.1% The models then raised every horizon on the new outlook and backlog.
The call, in brief
Takeaways
Quarterly revenue reached $92.3B, up 19% from a year earlier.
Revenue was $92.3 billion and increased 19%
Microsoft Cloud revenue was $63.9B, and its growth sped up to 30%.
Microsoft Cloud revenue of $63.9 billion, with growth accelerating to 30% (up 31% in constant currency) year-over-year
Azure, the company's cloud computing service, grew revenue 48%.
Azure revenue increased 48%
Signed business customer contracts not yet counted as revenue rose 73% to $677B.
Commercial remaining performance obligation increased 73% to $677 billion
Spending on data centers and equipment was $45.2B, lower than planned because some outside capacity arrived late.
Capital expenditures were $45.2 billion, as some third-party capacity deliveries we expected in Q1 were delayed.
What management stressed
- Copilot use is climbing fast
Daily users of the Copilot assistant rose nearly 50% in a quarter and more than five times in a year.
Daily users are up nearly 50% quarter over quarter and over 5x year over year.
- Paying by use, not seat
Microsoft now charges for how much customers use its software as well as per user, opening a bigger market.
Our business model is expanding from per-seat subscriptions to include consumption
- Foundry, the agent-building platform
The service businesses use to build software agents now has over 120,000 customers, with revenue more than tripling.
We now have over 120,000 Foundry customers with revenue more than tripling year over year.
- Microsoft's own models
Microsoft aims to match leading models within months, at far lower training cost, and pass savings to customers.
delivering capabilities comparable to leading models within three to six months of their release at a fraction of the training cost
- Building data centers quickly
Strong demand led Microsoft to open 24 new data centers on five continents in one quarter.
Accelerating demand led to us adding 24 new data centers across five continents this quarter.
- Windows sales to computer makers fell
Windows revenue from computer makers fell 27%, below plan, hurt by last year's upgrade rush and weak computer demand.
Windows OEM revenue was below expectations and decreased 27% and 28% in constant currency
What analysts asked
- Where future returns will come from1 question
Returns will come from every layer, from computing power to apps, and they build on each other.
It's not going to come from any one. It's going to come from every one of them, and it compounds when we work them across.
- What drives the Azure forecast1 question
Efficiency gains across the computing fleet and higher prices for model use drove results; some planned supply slipped later.
In Q1, I would say the engineering teams have really delivered very, very good work in terms of improving efficiency at the platform layer.
- Large companies versus artificial intelligence startups1 question
Broad use by many large companies is starting, and Microsoft prefers that breadth over a few huge buyers.
So I want the breadth. We are well positioned on the breadth.
- Mix of leading and in-house models1 question
Customers will switch among top outside models, combinations, and their own models, so Microsoft offers all options.
We really want to build a model system that delivers customers' value continuously versus, you know, them being stuck in any one thing.
- Keeping profit margins high1 question
Revenue growth comes first, backed by operating efficiency and spending focused on new products and security.
Let me first say the best solution here is revenue growth.
- Usage-based pricing for office software1 question
Paying by use will catch on fast for coding tools but more slowly elsewhere, though early signs are encouraging.
it will be a slower move outside of coding
- How Microsoft would raise money1 question
Microsoft has many choices, including leases and borrowing, and will raise money only when terms are attractive.
We have a lot of flexibility in terms of our capacity to raise financing.
Each line quotes the release or the call. The call's text is our machine transcription of the company's webcast.
What changed after the call
| Number | Before | After | Why |
|---|---|---|---|
| Q2 FY27 sales | $95.3B | $97.4B+2.2% | The company guided the December quarter above where the models had it, and they set middles at or above its top.Therefore, at a total company level, revenue should be between $96 and $97.1 billion U.S. dollars, or growth of 18 to 19 percent. |
| Q2 FY27 adjusted EPS | $4.88 | $4.91+0.5% | Earnings rose less than sales because guided cost of revenue grows much faster than revenue.We expect COGS of $32.7 to $32.9 billion U.S. dollars, or growth of 26 to 27 percent, and operating expense of $18.5 to $18.6 billion U.S. dollars, or growth of 9 percent, driven by continued investment in R&D compute capacity and talent. |
| Q3 FY27 sales | — | $99.1B | New: the quarter after the next report. |
| Q3 FY27 adjusted EPS | — | $4.90 | New: the quarter after the next report. |
| FY2027 sales | $389.5B | $395.9B+1.6% | The first quarter beat expectations across the board, so the models lifted the rest of the year.Our results exceeded expectations across revenue, operating income, and earnings per share, driven by strong demand across the Microsoft Cloud. |
| FY2027 adjusted EPS | $19.44 | $19.82+2.0% | The company still sees only a small margin decline, and the strong first quarter let models hold margins about flat.Even as we invest to meet growing demand, full fiscal year operating margins should be down less than a point. |
| FY2028 sales | $451.7B | $462.0B+2.3% | The backlog reported with the quarter persuaded models that capacity added next year gets sold.Commercial remaining performance obligation increased 73% to $677 billion |
| FY2028 adjusted EPS | $22.58 | $22.98+1.8% | Backlog visibility supports continued double-digit growth, which carries earnings up with sales.Commercial remaining performance obligation grew 73% to $677 billion, with a smaller sequential decline relative to historical seasonality due to the large Azure commitment this quarter. |
| FY2029 sales | $514.0B | $531.5B+3.4% | Azure's strong first quarter raised the base that the furthest year compounds from.Azure revenue increased 48% |
| FY2029 adjusted EPS | $25.93 | $26.57+2.4% | The company says efficiency gains let each dollar of spending support more revenue and returns over time.And as we continue to improve the efficiencies of our infrastructure, each dollar of CapEx has the potential to support more revenue and higher returns over time. |
Before is our forecast made before the release: the average of 6 models, cutoff 2026-10-27 06:00:22 ET. After is the average of the 6 new forecasts. Each why is the editor's line, with the quote that shows it.
FY2028 sales, each model
| Model | Before | After | Change |
|---|---|---|---|
| Opus 5.5 | $445.0B | $457.0B | +2.7% |
| GPT-6.1 Sol | $480.0B | $485.0B | +1.0% |
| GLM 5.3 | $452.0B | $447.0B | −1.1% |
| Kimi K3.1 Pro | $461.0B | $461.7B | +0.2% |
| Gemini 4 Argon | — | $466.5B | — |
| DeepSeek V4.1 Flash | $434.0B | $455.0B | +4.8% |
The outlook, rolled forward one quarter
The outlook page is written again from the new forecasts, with every part of the page before; it is also the next preview.
Our record
| Quarter | Our forecast | Outlook | Reported | Our miss |
|---|---|---|---|---|
| Q1 FY27 sales | $91.9B | $89.8B–$91.0B | $92.3B | +0.4% |
| Q1 FY27 adjusted EPS | $4.84 | — | $4.89 | +1.1% |
The forecast made before the release becomes one graded row: our miss is what was reported against our forecast, − when our forecast was too high. The record grows by one row a quarter.