Microsoft Q1 Beats as Azure Accelerates to 48% and Commercial Backlog Hits $677B

Microsoft (MSFT) reported fiscal first-quarter adjusted earnings per share of $4.89 and revenue of $92.28 billion on Wednesday, ahead of the consensus figures provided to MarketCatalyst ($4.72 and $90.74 billion). Revenue rose 19% and adjusted EPS rose 18%. Azure revenue grew 48% to $33.17 billion, faster than the roughly 45% constant-currency growth Microsoft guided to in July, and commercial remaining performance obligation (RPO) climbed 73% to $677 billion. Capital spending more than doubled to $39.37 billion.

Headline results

By our calculation, adjusted EPS beat the provided estimate by about 3.6% and revenue by about 1.7%, and operating income was about 50% of revenue. GAAP EPS of $4.92 was $0.03 above adjusted EPS because Microsoft's OpenAI investments added $0.03 to GAAP EPS this quarter, compared with a $0.41 reduction a year earlier.

Azure and the cloud backlog

Azure revenue was $33.17 billion, up 48%. Microsoft Cloud revenue grew 30% to $63.9 billion. Commercial RPO, the contracted revenue not yet recognized, rose 73% to $677 billion. For comparison, Microsoft restated fourth-quarter Azure revenue at $29.42 billion, according to its September segment disclosure, so by our calculation Azure grew about 13% from the prior quarter. In July, Microsoft guided to Azure growth of about 45% in constant currency and said it remained capacity constrained, so 48% is above that outlook, though the reported figure may not be on the same constant-currency basis.

New segments: Agents and Infra, Devices and Consumer

This is the first quarter under Microsoft's new two-segment structure, announced in September. Agents and Infra revenue of $76.8 billion compares with a July outlook of $75.15 billion to $75.75 billion, per Microsoft's guidance as updated for the new segments. Microsoft 365 Commercial Cloud revenue grew 17%, or 18% on an adjusted basis. Devices and Consumer fell 3%, with Windows OEM and Devices down 22%. By our calculation, Devices and Consumer operating income was about $5.3 billion, the difference between total and Agents and Infra operating income, and Agents and Infra's operating margin was about 53%.

Capital spending and cash returns

Capital expenditures rose 103% to $39.37 billion. Microsoft's July outlook, as summarized from the call, was for first-quarter capital expenditures above $50 billion, but the $39.37 billion figure is described as property and equipment expenditures and may be a narrower measure than the one guided, so the two should not be compared directly. Microsoft returned $10.2 billion to shareholders through dividends and buybacks in the quarter.

What it means

The quarter gives investors what they have been asking for: faster Azure growth and a rising contracted backlog to justify the spending. The questions that remain are how much of the $677 billion RPO is tied to a small number of AI customers, whether capacity constraints cap Azure growth, and what management guides for the December quarter on the 5:30 p.m. ET call.

Sources: Microsoft investor relations, first-quarter fiscal 2027 results (Oct. 28), and its September segment and Azure disclosure. Consensus estimates and the segment, cash-flow, capital-spending and OpenAI figures are as provided to MarketCatalyst. This is informational, not a recommendation to buy or sell.