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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 LSEG consensus:
Microsoft's revenue grew 19% year over year in the quarter, which ended on Sept. 30, according to a statement, with Azure now its biggest single business.
The software giant has been rapidly building out data center infrastructure to meet artificial intelligence demand, while also maintaining positive free cash flow unlike its fellow hyperscalers. Microsoft reported $45.2 billion worth of capital expenditures and finance leases during the quarter, up about 30% from a year earlier. Analysts surveyed by StreetAccount had projected $50.67 billion.
With respect to guidance, Microsoft called for $96 billion to $97.1 billion in fiscal second-quarter revenue, which works out to 18.8% growth at the middle of the range. Analysts polled by LSEG had predicted $95.60 billion in revenue.
For Azure, Hood said she anticipates 49% to 50% growth at constant currency for the fiscal second quarter, compared with the 45.1% StreetAccount consensus.
"We still have demand that exceeds supply," she said.
During the fiscal first quarter, Microsoft flagged a higher growth rate for cash paid for property and equipment than overall capital expenditures, which include finance leases. "Some third-party capacity deliveries we expected in Q1 were delayed," the company's finance chief, Amy Hood, said on a conference call with analysts.
Around 75% of capital expenditures are now tied to short-lived assets such as Intel chips and Nvidia graphics processing units, up from about 66% in the past three quarters and half in the year-ago quarter. The shift indicates Microsoft's prioritization of infrastructure it can can quickly turn into revenue.
Hood said the company is aiming at over $50 billion in fiscal second-quarter capital expenditures and finance leases, above the StreetAccount consensus of $53.10 billion, with $170 billion for all of calendar 2027 because of the capacity issues.
"In the second half of the fiscal year, we currently expect capex spend to accelerate primarily from CPUs, inclusive of higher memory and storage costs, and GPUs, as well as the 3P capacity deliveries that shifted to H2," she said. The delays have to do with GPU-as-a-service providers, she said.
Free cash flow for the fiscal first quarter declined 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 its cash flow turned negative for the first time.
Microsoft will continue to generate free cash flow through the 2027 fiscal year, but the company will access additional sources of funding when it's attractive to do so, Hood said.
"We're fortunate to have access in the debt markets, given where our rates ratings are, and sort of we haven't been able to — we haven't yet, I would say, tapped that," she said. "And then, of course, there's other options."
Microsoft's net income increased to $36.63 billion, or $4.92 per share, from $27.75 billion, or $3.72 per share, a year ago. Adjusted earnings exclude a roughly $200 million loss on its investment in OpenAI.
For the first time, Microsoft disclosed revenue from its Azure cloud in dollars, at $33.17 billion in the quarter, despite the delays from third-party providers.
Analysts polled by StreetAccount expected $32.32 billion. The growth rate in the June quarter was 42%.
Microsoft reported results under two operating segments — Agents and Infra, and Devices and Consumer. For the past 11 years, the company had three segments that divided up its Azure, Office and Windows businesses.
In Agents and Infra, revenue rose almost 25% to $76.8 billion, more than the $75.63 billion consensus among analysts polled by StreetAccount. The segment contains Azure, along with Microsoft 365 cloud products, productivity and server licensing, industry solutions and frontier and support services.
The number of people using the Microsoft 365 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 seats. The recently announced high-end Microsoft 365 E7 productivity bundle now has millions of seats, Hood said.
Revenue in the Devices and Consumer business slipped 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 makers.
Sales of devices and Windows licenses declined 22%, as higher memory and storage costs elevated prices. The company pointed to the end of support for Windows 10 last year and weak PC demand.
As of Wednesday's close, Microsoft shares were up about 10% year to date, trailing the S&P 500 index, which has gained 13% over the same period.
During the fiscal first quarter, Microsoft said it would cut 4,800 jobs, and followed up by announcing on Monday that it's offering buyouts to up to 60,000 employees, as it strives to balance a costly AI build-out with capital efficiency. Microsoft also established, during the quarter, an AI implementation unit and revealed a Copilot AI "super app" with coding abilities.
WATCH: What to expect from Microsoft
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