Microsoft (MSFT) FY2027 Q1 Earnings Explained
Results jumped sharply, with Azure cloud as the main engine
Microsoft posted revenue of $92.28 billion this quarter, up 19% year over year; net income was $36.63 billion, up 32%, and diluted EPS came in at $4.92 per share. The main growth drivers were Agents and Infra, especially Azure, where revenue rose 48%, while Microsoft Cloud increased to $63.9 billion, up 30%. Consumer and devices lagged, with Devices and Consumer revenue down 3%, mainly because of declines in Windows OEM and device businesses. Profit also got a boost from the comparison with last year, when OpenAI investment was a loss; this quarter it turned into a gain. But the company also warned that AI and data center spending will keep pushing up costs and could pressure margins.
📊 Stock Price & Market Cap
- As of October 28, 2026, Microsoft shares were at $531.01, not far from the 52-week high of $543.45 and well above the 52-week low of $352.83, showing the market is already pricing in high expectations.
- Based on the filing date, Microsoft’s market cap was about $3.94 trillion, which is enormous; at this size, only sustained growth in big businesses like cloud and AI can really move the overall results.
- Trailing 12-month diluted EPS was $19.15, which works out to a trailing P/E of 27.7x. That’s not cheap — it looks more like the market is paying up for continued growth.
Data as of 2026-10-28 (filing date) · Price: Yahoo Finance · Shares & EPS: SEC filing · Forward P/E: not available · Yahoo Finance
🏦 What Wall Street Thinks
Analysts are mostly upbeat: as of September 30, 2026, out of 55 ratings, 39 were 'Strong Buy,' 14 were 'Buy,' 2 were 'Hold,' and none were 'Sell.' The target-price range is $440 to $750, with an average target of $626.20, which shows bullish expectations are the norm, though opinions still vary quite a bit.
Ratings as of: 2026-09-30 · Price targets as of: 2026-11-04 · Source: stockanalysis.com
Analyst forecasts are for reference only. Historically, price targets have not been very accurate. Invest at your own risk.
💰 How Much They Made
| This quarter | Year ago | 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% |
| Operating profit | $45.91B | $37.96B | ▲ 21.0% |
| Net income | $36.63B | $27.75B | ▲ 32.0% |
| Diluted EPS | $4.92 | $3.72 | ▲ 32.3% |
- Revenue was $92.28 billion, up 19% year over year, mainly driven by Agents and Infra, especially strong demand for Azure.
- Net income was $36.63 billion, up 32% year over year; diluted EPS rose from $3.72 to $4.92, meaning profit grew faster than revenue.
- Operating profit was $45.92 billion, up 21% year over year. The company said strong revenue growth, better platform efficiency, and a more focused investment mix helped offset some of the pressure from a higher share of Azure business.
📊 Where the Money Went
| This quarter | Year ago | Change | |
|---|---|---|---|
| Cost of revenue | $29.72B | $24.04B | ▲ 23.6% |
| R&D expenses | $9.05B | $8.15B | ▲ 11.1% |
| Sales and marketing expenses | $5.72B | $5.72B | ▼ 0.0% |
| General and administrative expenses | $1.88B | $1.81B | ▲ 4.2% |
| Total operating expenses | $16.64B | $15.67B | ▲ 6.2% |
- Cost of revenue was $29.72 billion, up 24% year over year, mainly because of growth in Agents and Infra, especially higher data center infrastructure spending to support Azure and Microsoft 365 cloud demand.
- R&D expenses were $9.05 billion, up 11% year over year, as the company said it kept investing in computing power and talent.
- Sales and marketing expenses were $5.72 billion, basically flat; general and administrative expenses were $1.88 billion, up 4% year over year. Total operating expenses were $16.64 billion, up 6% year over year.
🏢 Business Segments
This was Microsoft’s main engine this quarter: revenue was $76.8 billion, up 25% year over year; operating profit was $40.56 billion. Azure revenue grew 48%, and Microsoft 365 cloud plus industry solutions cloud also kept growing.
This segment posted revenue of $15.48 billion, down 3% year over year, but operating profit was $5.36 billion, still up 2%. The pressure mainly came from a 22% drop in Windows OEM and device revenue, partly offset by growth in search and advertising.
🏦 Balance Sheet
| Period end | Prior FY end | Change | |
|---|---|---|---|
| Total assets | $779.40B | $758.38B | ▲ 2.8% |
| Total liabilities | $308.89B | $315.99B | ▼ 2.2% |
| Shareholders' equity | $470.51B | $442.39B | ▲ 6.4% |
| Cash and cash equivalents | $20.28B | $20.93B | ▼ 3.1% |
| Long-term debt | $31.09B | $31.07B | ▲ 0.1% |
- At quarter-end, Microsoft’s total assets were $779.4 billion, above $758.38 billion at the end of the prior fiscal year; shareholders’ equity also rose to $470.51 billion.
- Total liabilities fell from $315.99 billion at the end of the prior fiscal year to $308.89 billion, while long-term debt was $31.09 billion, basically close to the prior year-end level.
- Cash and cash equivalents alone were $20.28 billion; if short-term investments are included, the company reported a combined total of cash, cash equivalents, and short-term investments of $64.51 billion.
⚠️ Total assets on the books ($779.40B) are not what the company is worth. The market values Microsoft at $3.94T, 5.1× its book assets. The gap comes from things the balance sheet doesn't show: brand, technology, customer relationships and future earning power.
📈 vs. Last Quarter
| This quarter | Last quarter | Change | |
|---|---|---|---|
| Revenue | $92.28B | $90.01B | ▲ 2.5% |
| Cost of revenue | $29.72B | $29.52B | ▲ 0.7% |
| Gross profit | $62.56B | $60.48B | ▲ 3.4% |
| R&D expenses | $9.05B | $10.00B | ▼ 9.5% |
| Operating profit | $45.91B | $40.60B | ▲ 13.1% |
| Net income | $36.63B | $35.77B | ▲ 2.4% |
- Compared with the previous quarter, revenue, gross profit, operating profit, and net income were all higher; R&D expenses were lower than in the prior quarter.
- The materials provided do not explain the quarter-over-quarter changes separately, so this is just a numerical comparison without extra speculation.
📅 vs. a Year Ago
| This quarter | Year ago | 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% |
| Operating profit | $45.91B | $37.96B | ▲ 21.0% |
| Net income | $36.63B | $27.75B | ▲ 32.0% |
| Diluted EPS | $4.92 | $3.72 | ▲ 32.3% |
- Revenue rose by about $14.6 billion year over year, mainly because of growth in Agents and Infra, especially strong Azure demand.
- Cost of revenue increased year over year, mainly because of higher data center infrastructure spending to support demand for Azure and Microsoft 365 cloud.
- Net income and EPS surged year over year. Beyond core business growth, OpenAI investment also played a role: this quarter, the OpenAI investment generated a net gain of $207 million, while a year ago it was a net loss of $3.09 billion.
🎯 Key Takeaways for Investors
Microsoft Cloud revenue was $63.9 billion, up 30% year over year; Azure revenue grew 48%. That shows Microsoft wasn’t just getting a lift from one small business this quarter — demand across the cloud platform is still scaling up.
Commercial remaining performance obligations reached $677 billion, up 73% year over year. You can think of this as a pool of signed future commercial revenue that will be recognized over time, which helps with revenue visibility down the road.
The company clearly said that cloud and data center infrastructure investment will keep raising operating costs and could reduce operating margins. The hotter AI demand gets, the more resources it takes — land, power, networking, servers, and GPUs.
Devices and Consumer revenue fell 3% year over year, including a 22% drop in Windows OEM and device revenue. Search and advertising grew, but not enough to fully offset the pressure from PC and device-related businesses.
The stock was near its 52-week high on the filing date, with a market cap of about $3.94 trillion and a trailing P/E of 27.7x. That kind of valuation means investors will be watching closely to see whether Azure, Microsoft Cloud, and AI spending can keep delivering growth.
📄 Original Filing
- Original 10-Q on SEC EDGAR (2026-10-28, accession 0001193125-26-436133)
- SEC filing index (incl. financial statements)
This page was generated by AI from the company's SEC filing and translated by AI. Not investment advice.