01—Abstract
Summary
Summary of the 10-Q filed October 28, 2026. Cited figures are marked; the original filing is the authoritative source.
Microsoft Corporation's (MSFT) Q1 FY2027 filing demonstrates robust top-line growth, with total revenue increasing by 19% year-over-year to $92.3 billiona.
This growth was primarily fueled by the "Agents and Infra" segment, which saw a significant 25% revenue jump, largely driven by Azure's impressive 48% surge. The company continues its strategic pivot and investment in AI and cloud services, as evidenced by the substantial increase in "Commercial remaining performance obligation" to $677 billionb, indicating strong future revenue potential. Despite overall growth, the "Devices and Consumer" segment experienced a slight revenue decline of 3%, primarily due to a significant 22% drop in Windows OEM and devices revenue, partially offset by growth in search and advertising.
Profitability metrics also showed strength, with operating income up 21% to $45.9 billionc and net income soaring 32% to $36.6 billion. Diluted earnings per share (EPS) saw a similar 32% increase to $4.92. The company's financial health is further supported by a strong cash flow from operations of $58 billion.
While investments in R&D and datacenter infrastructure continue to drive operating expenses higher, the company's ability to manage costs and scale its cloud offerings efficiently is apparent. Investors should note the ongoing investments in AI, strategic partnerships like the one with OpenAI, and the potential impact of regulatory scrutiny and macroeconomic factors, as detailed in the risk factors section.
02—Key points
Key Highlights
- Total revenue increased 19% to $92.3 billion, driven by strong performance in the "Agents and Infra" segment.
- Azure revenue experienced a significant surge of 48%, highlighting continued demand for cloud infrastructure and services.
- Commercial remaining performance obligation reached $677 billion, indicating robust future contracted revenue.
- Operating income grew 21% to $45.9 billion, and net income increased 32% to $36.6 billion, demonstrating strong profitability.
- Diluted Earnings Per Share (EPS) rose 32% to $4.92.
- The "Devices and Consumer" segment saw a 3% revenue decline, primarily due to a 22% drop in Windows OEM and devices.
- Microsoft continues to invest heavily in AI and datacenter infrastructure, with R&D expenses increasing by 11%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2027, Microsoft kept $0.40.
- Revenue$92.28B100.0%
- Cost of revenue−$29.72B32.2%
- Gross profit$62.56B67.8%
- Operating costs−$16.64B18.0%
- Operating income$45.91B49.8%
- Interest, other & tax−$9.29B10.1%
- Net income$36.63B39.7%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2027filed October 28, 2026Financial Statements
Q1 FY2027 against Q1 FY2026
| Line item | Q1 FY2027Q1 FY2026 | Change |
|---|---|---|
| Revenue | $92.28B$77.67B | +18.8% |
| Cost of Revenue | $29.72B$24.04B | +23.6% |
| Gross Profit | $62.56B$53.63B | +16.6% |
| R&D Expenses | $9.05B$8.15B | +11.1% |
| Operating Expenses | $16.64B$15.67B | +6.2% |
| Operating Income | $45.91B$37.96B | +21.0% |
| Net Income | $36.63B$27.75B | +32.0% |
| EPS (Basic) | $4.93$3.73 | +32.2% |
| EPS (Diluted) | $4.92$3.72 | +32.3% |
| Shares Outstanding (Basic) | 7.43B7.43B | −0.1% |
| Shares Outstanding (Diluted) | 7.45B7.47B | −0.3% |
05—Questions
Frequently Asked Questions
What is the primary driver of Microsoft's revenue growth in this quarter?
The primary driver of Microsoft's revenue growth in this quarter is the "Agents and Infra" segment, which saw a 25% increase in revenue. This growth was largely propelled by Azure, which experienced a substantial 48% year-over-year revenue increase.
How is Microsoft's investment in AI impacting its financial performance?
Microsoft is making significant investments in AI, particularly in its cloud infrastructure (Azure) and related services. This is reflected in increased R&D expenses and a strong demand for Azure services, which is a key component of its "Agents and Infra" segment's growth. The company also highlights its strategic partnership with OpenAI, which contributes to its "Other income (expense), net" through gains and losses from investments.
What is the outlook for future revenue based on this filing?
The outlook for future revenue appears strong, as indicated by the "Commercial remaining performance obligation" increasing by 73% to $677 billion. This represents contracted revenue yet to be recognized, suggesting a solid pipeline of future business across Microsoft's cloud and software offerings.
What are the main concerns or risks highlighted in the filing?
Key risks highlighted include intense competition across all technology sectors, evolving business models (especially in AI and cloud), cybersecurity threats and data privacy concerns, potential for operational disruptions in infrastructure and supply chains, and the impact of macroeconomic conditions and geopolitical events. The company also faces ongoing scrutiny regarding competition laws and AI regulation.
06—Continue