Microsoft Azure Revenue Surges 48% in Fiscal Q1, AI Capex Comes in Below Expectations

Microsoft reported fiscal first-quarter results for the period ended September 30, 2026, after market close on October 28. Revenue rose 19% year over year to $92.28 billion, beating analyst estimates of $90.63 billion. Operating income increased 21% to $45.92 billion, while non-GAAP diluted EPS came in at $4.89, up 18.4%.

Azure, Microsoft's cloud computing platform, grew 48% year over year to $33.17 billion in quarterly revenue, accelerating from 43% growth in the prior quarter and exceeding the 44.8% consensus estimate. Total Microsoft Cloud revenue reached $63.9 billion, up 30% year over year.

Cash capital expenditures totaled $39.37 billion, more than double the prior year but 14.3% below analyst expectations and down from roughly $41 billion in the previous quarter. The combination of faster Azure growth and lower-than-expected capital spending was seen as a sign of improving AI investment efficiency, sending shares up as much as 5.7% in after-hours trading.

However, free cash flow fell about 27% year over year to $18.63 billion, and commercial bookings declined 12% in the quarter. Microsoft also adopted a new segment structure, merging its intelligent cloud and productivity businesses into an "Agents and Infra" segment, with Azure and Microsoft 365 Cloud as its main pillars.