Microsoft beats on earnings and revenue

Microsoft posted fiscal first-quarter earnings that beat Wall Street’s expectations, powered by growth in its Azure cloud business.

For the quarter ended September 30, the software giant reported adjusted earnings per share of $4.13, beating analyst estimates of $3.67. Total revenue was $77.7 billion, up 18% year on year, coming in above forecasts of $75.4 billion.

Microsoft’s Azure cloud business revenues grew 40% year on year, compared with Wall Street’s expectations for 38% growth.

Despite the performance, shares dropped 2.6% in recent after-hours trading. Management indicated that they would provide guidance on the upcoming conference call.

Today, a widespread outage of the cloud service affected Microsoft’s Xbox and 365 platforms, as well as its investor relations site. The Azure support account on X wrote: “We’re investigating an issue impacting several Azure services. Customers may experience issues when accessing services.”

Breaking down the results by the company’s business lines:

• ☁️ 🤖 “Intelligent Cloud” (Azure, server products): $30.9 billion in revenue, up 28% year on year, beating analyst estimates of $30.2 billion. Digging in deeper, Azure and other cloud services revenue increased 40%.

• 📝 📊 “Productivity and Business Processes” (Microsoft 365, LinkedIn, Dynamics): $33 billion in revenue, up 17% year on year, beating analyst estimates of $32.3 billion.

• 💻 🎮 “More Personal Computing” (Windows, Xbox, Bing): $13.8 billion in revenue, up 4% year on year, beating analyst estimates of $12.8 billion.

Tariffs may be starting to pinch Microsoft’s hardware business, as it raised Xbox prices twice this year. The company also announced that it’s moving most hardware production out of China.

CEO Satya Nadella said:

“Our planet-scale cloud and AI factory, together with Copilots across high value domains, is driving broad diffusion and real-world impact. It’s why we continue to increase our investments in AI across both capital and talent to meet the massive opportunity ahead.”

Capital expenditures for the quarter were $34.9 billion, up 74% year on year compared to analysts’ consensus forecast of $25.4 billion. Last quarter, Microsoft said it expected lower capex spending growth in the second half of the fiscal year.

After OpenAI announced the completion of its restructuring yesterday, Microsoft shared new details on the updated partnership between the two companies, which had become strained over the past few months.

Microsoft now holds a stake in OpenAI worth approximately $135 billion, or 27% of the $500 billion startup. The deal includes a commitment from OpenAI to buy $250 billion worth of Azure services, and includes new opportunities for Microsoft to pursue AGI on its own, or with partners.