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Microsoft reports a 48% year-on-year increase in Azure revenue in Q1 FY27, driven by demand for cloud computing and AI services. The company’s overall revenue was $92.3 billion for the quarter, up 19% year-on-year. Net income rose 32% to $36.6 billion, compared with $27.7 billion in the same quarter last year. Microsoft also reported higher operating income, which increased 21% to $45.9 billion. Microsoft also said demand for its AI infrastructure is outpacing available capacity. During its earnings call, the company said it had added 24 data centres across five continents during the quarter. It expects Azure revenue growth to accelerate further in the December quarter, forecasting 49% to 50% growth in constant currency. The cloud business remained the main growth driver. Revenue from Microsoft's newly classified Agents and Infra segment, which includes Azure and commercial cloud services, rose 25% Microsoft spent $45.2 billion on capital expenditure during the quarter and expects spending to exceed $50 billion in Q2. CFO Amy Hood said the company expects capital expenditure to reach about $170 billion for calendar-year 2026, with spending accelerating in the second half as delayed third-party capacity comes online. Days before the earnings report, Microsoft began offering voluntary exit packages to around 60,000 employees across India, the US, the UK, and Canada, giving eligible staff the option to leave the company with financial support and career-planning resources. The programme covers roughly 27% of Microsoft's global workforce of 223,000. For the upcoming quarter, the company expects operating expenses of $18.5 billion to $18.6 billion, up 9% year-on-year. Hood said this cost guidance includes the estimated cost of the voluntary exit programme. Roughly three-quarters of Q1 capital expenditure went to short-lived assets, primarily CPUs and GPUs, along with higher memory and storage costs. The company is also trying to increase revenue from its existing infrastructure. Hood said engineering improvements across GPUs, CPUs, memory, storage and applications helped Microsoft create additional capacity within its existing fleet. Besides, higher-than-expected token pricing also contributed to Azure's performance during the quarter. The company’s commercial cloud contracts also point to continued demand. Microsoft’s commercial remaining performance obligations, representing contracted revenue yet to be recognised, rose 73% to $677 billion. Meanwhile, Google Cloud reported $30.7 billion in revenue in the September quarter, up 103% year-on-year. Alphabet attributed the increase to demand for AI infrastructure, enterprise AI solutions and core cloud services, with sales of its Tensor Processing Unit (TPU) systems also contributing to growth.
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