Azure revenue rises 48%; Microsoft forecasts over $50bn in next-quarter capex

Microsoft’s Azure revenue rose 48% year-over-year to $33.165 billion in the July–September quarter. The company reported its fiscal 2027 first-quarter results on October 28 and projected capital expenditure above $50 billion for the following quarter, October–December. Microsoft said some third-party capacity deliveries expected during the quarter were delayed.

Total revenue rose 19% to $92.279 billion, while operating income increased 21% to $45.915 billion. Cost of revenue rose 24% to $29.720 billion, outpacing sales growth. Companywide gross margin was 68%, covering businesses beyond cloud. Microsoft Cloud revenue grew 30% to $63.9 billion. That measure combines Azure, Microsoft 365 commercial cloud and Industry solutions cloud. Azure itself includes AI consumption-based services alongside other cloud services and virtual desktops, so its disclosed revenue covers that broader portfolio.

Capital expenditure, including assets acquired under finance leases, increased 30% to $45.2 billion. Roughly three-quarters went toward short-lived assets, mainly CPUs and GPUs. Microsoft said those assets support Azure, Microsoft 365 cloud, research and development, and replacement of aging servers and networking equipment. The remainder was for long-lived assets.

Cash paid for property and equipment rose 103% to $39.4 billion. Microsoft attributed the different growth rates to receipt-and-payment timing and a lower finance-lease mix. Finance leases were $7.4 billion, recognized at full principal value when they commenced. Operating cash flow was $58 billion; free cash flow after property-and-equipment spending was $18.6 billion.

Revenue, cash spending and future contracts measure different things

Azure’s growth accelerated from 42% in the preceding quarter to 48%. Microsoft Cloud gross margin was 66%, compared with 65% sequentially and 68% a year earlier. Gross margin deducts direct costs from revenue; its scope differs from companywide operating margin. Historical comparisons were recast for Microsoft’s September segment changes. Microsoft 365 commercial cloud revenue rose 17% and paid seats grew 5%. Microsoft attributed higher revenue per user to premium subscriptions and growing GitHub Copilot consumption.

Commercial remaining performance obligations reached $677 billion, up 73% year-over-year, versus $678 billion in the preceding quarter. RPO includes unearned revenue and contracted amounts to be billed and recognized in future periods. Commercial bookings declined 12%, with Microsoft citing large Azure commitments in the prior-year comparison. Microsoft expects roughly 30% to be recognized in revenue over the next 12 months.

The quarterly filing also reports $364.6 billion in leases that had not commenced at September 30, primarily for datacenters. Commencement dates span fiscal 2027–2034, with lease terms of one to 20 years. Some arrangements require contractual conditions to be met. These commitments describe future access to facilities across multiple periods, separate from current-quarter cash payments or the value of operational datacenters.

For fiscal 2027’s second quarter, Microsoft forecasts Azure revenue growth of 49%–50% in constant currency and Microsoft Cloud gross margin around 65%. These are company projections for October–December, following the quarter covered by the reported results.

Companywide revenue guidance is $96 billion–$97.1 billion. The capital-expenditure forecast above $50 billion applies to that same quarter. Microsoft expects operating margin to decline slightly year-over-year. Its outlook cautions that actual results may differ because of risks and uncertainties affecting the business.