Microsoft shares rose 4% in extended trading on Wednesday after the company reported better-than-expected quarterly results, driven by 48% growth in its Azure cloud infrastructure business. Here’s how the company fared relative to the LSEG consensus: Earnings per share: Adjusted $4.89 vs. $4.73 expected Revenue: $92.28 billion vs. $90.69 billion expected Microsoft’s revenue grew 19% year over year in the quarter, which ended on Sept. 30, according to a statement. Azure is now its largest single business. The software giant has been rapidly building data center infrastructure to meet demand for artificial intelligence, while maintaining positive free cash flow unlike its fellow hyperscalers. Microsoft reported capital expenditures and financial leases of $45.2 billion during the quarter, up about 30% from a year earlier. Analysts surveyed by StreetAccount had projected $50.67 billion. Regarding guidance, Microsoft called for between $96 billion and $97.1 billion in fiscal revenue for the second quarter, which equates to 18.8% growth in the middle of the range. Analysts surveyed by LSEG had forecast $95.6 billion in revenue. For Azure, Microsoft CFO Amy Hood said on a conference call with analysts that she anticipates growth of 49% to 50% in constant currency for the fiscal second quarter, compared to the StreetAccount consensus of 45.1%. “We still have demand that exceeds supply,” he said. During the fiscal first quarter, Microsoft reported a higher growth rate for cash paid for property and equipment than general capital. expenses, which include financial leases. “Some deliveries of third-party capacity that we expected in the first quarter were delayed,” Hood said. About 75% of capital spending is now tied to short-lived assets such as Intel chips and Nvidia graphics processing units, compared with about 66% in the last three quarters and half in the prior-year quarter. The change signals that Microsoft is prioritizing infrastructure that it can quickly turn into revenue. Hood said the company is targeting more than $50 billion in capital expenditures and financial leases for the fiscal second quarter, above the StreetAccount consensus of $53.10 billion, with $170 billion for all of calendar 2027 due to capacity issues. “In the second half of the fiscal year, we currently expect capex to accelerate primarily due to CPUs, including higher memory and storage costs, and GPUs, as well as 3P capacity deliveries carried over to the second half,” he said. The delays have to do with GPU-as-a-service providers, he said. Free cash flow for the fiscal first quarter decreased 27% to $18.63 billion. Cloud rival Alphabet reported more than $9 billion in negative free cash flow in the quarter after Meta said last week that its cash flow turned negative for the first time. Microsoft will continue to generate free cash flow through fiscal 2027, but the company will access additional sources of financing when it is attractive to do so, Hood said. “We’re fortunate to have access to the debt markets, given where our rate ratings are, and in some ways we haven’t been able to – we haven’t taken advantage of that yet, I would say,” he said. “And then, of course, there are other options.” Microsoft’s net income rose to $36.63 billion, or $4.92 per share, from $27.75 billion, or $3.72 per share, a year ago. The adjusted earnings exclude a loss of about $200 million from its investment in OpenAI. For the first time, Microsoft revealed its Azure cloud revenue in dollars, $33.17 billion for the quarter, despite delays from third-party vendors. Analysts surveyed by StreetAccount expected $32.32 billion. The growth rate in the June quarter was 42%. Microsoft reported results in two operating segments: Agents and Infrastructure, and Devices and Consumer. For the past 11 years, the company had three segments that divided its Azure, Office and Windows businesses. In Agents and Infrastructure, revenue rose nearly 25% to $76.8 billion, higher than the consensus of $75.63 billion among analysts surveyed by StreetAccount. The segment contains Azure, along with Microsoft 365 cloud products, productivity and server licensing, industrial solutions, and frontier and support services. The number of people using Microsoft 365’s Copilot AI assistant is up 50% from last quarter, CEO Satya Nadella said on the call. The company did not disclose the number of paid positions. The recently announced Microsoft 365 E7 high-end productivity suite now has millions of seats, Hood said. Revenue in the Devices and Consumer business fell 3% to $15.48 billion, beating the StreetAccount consensus of $15.05 billion. The unit includes search and advertising, Xbox, devices and Windows operating system licenses sold to device manufacturers. Sales of Windows devices and licenses declined 22% as higher memory and storage costs drove up prices. The company noted the end of support for Windows 10 last year and weak PC demand. As of Wednesday’s close, Microsoft shares were up about 10% so far this year, trailing the S&P 500 index, which gained 13% over the same period. During the fiscal first quarter, Microsoft said it would cut 4,800 jobs and then announced Monday that it is offering acquisitions of up to 60,000 employees, as it struggles to balance an expensive AI buildout with capital efficiency. Microsoft also established an AI deployment unit during the quarter and revealed an AI Copilot “super app” with coding capabilities. WATCH: What to expect from Microsoft
