Microsoft beat Wall Street’s forecasts for revenue and adjusted earnings in its fiscal first quarter, with Azure revenue growing 48% year over year. Shares rose about 5% in Wednesday after-hours trading. However, free cash flow declined as the company continued to invest heavily in AI infrastructure, leaving investors to weigh growth against cash generation.
Revenue reaches $92.28 billion
For the quarter ended September 30, Microsoft reported revenue of $92.28 billion, up 19% from a year earlier and ahead of analysts’ $90.69 billion estimate. Adjusted earnings were $4.89 a share, above the $4.73 consensus. The adjusted figure excluded about $200 million in effects related to Microsoft’s investment in OpenAI.
On an unadjusted basis, net income was $36.63 billion, or $4.92 a share, compared with $27.75 billion, or $3.72 a share, a year earlier. Free cash flow moved in the opposite direction, falling 27% year over year to $18.63 billion.
Azure revenue tops $33 billion
Microsoft disclosed Azure’s revenue in dollar terms for the first time, reporting $33.17 billion for the quarter. That exceeded the $32.32 billion expected by analysts surveyed by StreetAccount. Azure growth accelerated to 48%, from 42% in the previous quarter and above an expected rate of more than 44%.
Demand for AI services is driving continued data-center expansion. Capital spending and finance-lease costs totaled $45.2 billion, up about 30% year over year but below analysts’ estimate of $50.67 billion. The scale of that investment, and its eventual returns and effect on cash flow, remain central to assessing the quality of Microsoft’s growth.
New reporting structure highlights cloud and productivity
Microsoft changed its segment reporting for the first time since 1998, moving from three divisions to two. Its new “Agents and Infra” segment generated $76.8 billion in revenue, up nearly 25% and above StreetAccount’s $75.63 billion estimate. The segment includes Azure, Microsoft 365 cloud products, productivity and server licensing, industry solutions, and frontier technologies and support services.
Microsoft 365 cloud revenue was $27.78 billion, also ahead of the $27.37 billion market estimate. The new structure groups Azure with a broader range of businesses, while the separate dollar disclosure gives investors a clearer view of the cloud service’s scale.
The other division, “Devices and Consumer,” posted revenue of $15.48 billion, down 3% year over year but above the $15.05 billion forecast. It includes search and advertising, Xbox, devices, and Windows operating-system licenses sold to device makers. Microsoft said sales of devices and Windows licenses fell 22%.
Research firm Gartner estimated that global PC shipments declined 22.4% in the third quarter. Higher memory and storage costs, which have pushed up prices, were among the pressures on the market.
AI investment coincides with workforce cuts
Alongside its spending on AI infrastructure, Microsoft is adjusting costs and staffing. The company announced 4,800 job cuts in the first quarter of its fiscal year. On Monday, it said it would offer voluntary buyouts to as many as 60,000 employees.
Microsoft also established an AI implementation division during the quarter and launched a Copilot AI “super app” with coding capabilities. The moves come as the company expands its AI business while seeking to manage capital efficiency.
Microsoft shares closed Wednesday up about 10% for the year, trailing the S&P 500’s 13% gain. The after-hours rise followed stronger-than-expected revenue and earnings and faster Azure growth; the quarter also showed lower free cash flow and rising investment in data centers.