Microsoft closed its first fiscal quarter of 2027 with higher profits, further growth in Azure and cash flow that would make many big tech jealous in the face of heavy spending on AI. These good figures have apparently calmed some of the general nervousness among investors regarding the cost of AI development. And a few interesting notes: its investment in OpenAI brought it a good return, and the results were presented only after the company ‘invited’ about 60,000 workers to leave.
Statistics formula. Revenue for the quarter reached $92.3 billion, up 19% from a year earlier and above Wall Street forecasts, according to the Wall Street Journal. Net income rose 32% to $36.6 billion, or $4.92 per share.
Cloud stores furniture. While there is uncertainty in the market about whether investing hundreds of billions in AI will pay off, Microsoft has given a reassuring push. But not because of its AI business, but because of Azure, its cloud infrastructure which, according to the figures, grew 48% to $33.2 billion, up from 43% growth in the previous quarter. Microsoft Cloud, which includes Azure and Microsoft 365 Cloud, brought in $63.9 billion, up 30%.
reconstruction. As Microsoft CEO Satya Nadella detailed in his annual letter, the company continues to get news about how it presents its results, and we saw this change materialize in the latest report. Microsoft has reorganized it into two categories: ‘Agents and Infrastructure’, and ‘Devices and Consumers’. Here they now detail Azure’s revenue in dollars per quarter instead of just its growth rate, something that allows for more direct comparisons with its main rivals, Amazon Web Services and Google Cloud. This is another way to take advantage of Azure, a service that is saving them money from so much AI spending.
So, in its agents and infrastructure segment, the company generated $76.8 billion, up 25% between Azure, Microsoft 365, and server products. And when it comes to ‘devices and consumer’, which includes Windows, Xbox and publi in search, they generated $15.5 billion, down 3%.
OpenAI factor. Microsoft also claims that its commercial deal with OpenAI, including revenue sharing payments, generated $10 billion in the quarter. That represented about 11% of total sales, compared with about 7% in the fiscal year ended in June, Bloomberg reported.
This fact is interesting because it shows how much their outcome depends on their AI partner, a marriage that started off on the right foot, but the relationship slowly deteriorated. The relationship between the two companies was restructured in April after the startup became a profitable company. With this, Microsoft acquired a stake in OpenAI worth around $135 billion. This allows the company to maintain access to OpenAI technology until 2032.
Expenses and cash flows. By the numbers, capital spending rose nearly 30% to $45.2 billion, lower than the company’s own forecast because some third-party data center capacity arrived late, according to Jonathan Nielsen, Microsoft’s head of investor relations. Free cash flow was $18.6 billion, about $10 billion more than analysts expected, as Reuters shared.
This quarter, Microsoft said it added 24 data centers across five continents, and CFO Amy Hood expects revenue to exceed $50 billion in the current quarter.
Of course, these results are much more positive than the costs and cash flows of its most direct competitors. Alphabet (Google’s parent company) recorded negative free cash flow of $9.07 billion, and Meta spent more cash than it generated, which has not happened to a company in more than a decade.
Read Windows and Xbox. Windows OEM and device revenue fell 22%. According to The Verge, Microsoft blamed increased PC upgrades before the end of Windows 10 support, high inventory and a weak PC market.
On the other hand, Xbox is still in the doldrums, as its revenue fell 2%. The company intends to offset these costs by inviting approximately 60,000 employees to leave by offering them their respective compensation. This represents about a quarter of its workforce. A company spokesperson said the company expects between 3% and 5% (less than 3,000 people) to take up the plan. What will happen to the remaining 57 thousand people? Not much else is known at this time.
forecast. Microsoft estimated revenue of $96 billion to $97.1 billion for the current quarter, and Azure grew between 49% and 50%. During the meeting, Hood noted that the company will remain with positive free cash flow through fiscal 2027 and will raise funds “when we believe it is attractive to do so,” as shared by Bloomberg.
Cover image Simon Ray
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