Microsoft shares rose 5% in extended trading following the release of the company’s fiscal first-quarter earnings report, which outperformed Wall Street expectations across key financial metrics. The performance was anchored by a 48% growth rate in the company’s Azure cloud infrastructure business, signaling continued corporate demand for digital infrastructure and cloud services.
For the quarter that ended on Sept. 30, Microsoft reported adjusted earnings per share of $4.89, edging past the $4.73 consensus estimate compiled by LSEG. Total revenue reached $92.28 billion, topping expectations of $90.69 billion and marking a 19% increase compared to the same period a year earlier. Net income reached $36.63 billion, or $4.92 per share, climbing from $27.75 billion, or $3.72 per share, reported in the prior-year quarter. The adjusted earnings figures exclude an approximate $200 million financial impact stemming from investments in OpenAI.
Free cash flow dropped 27% during the quarter to $18.63 billion. That contraction occurred as cloud and technology rivals also reported cash flow pressures; Alphabet posted negative free cash flow for the period, and Meta indicated that it had similarly turned free cash flow negative.
Driving much of the financial activity was heavy investment in artificial intelligence capabilities. Microsoft posted $45.2 billion in capital expenditures and finance leases during the quarter, representing a roughly 30% increase. That figure came in below the $50.67 billion projected by analysts surveyed by StreetAccount, suggesting a degree of capital restraint relative to expectations.
In a notable reporting change, Microsoft disclosed actual dollar revenue for Azure for the first time in an earnings statement, reporting $33.17 billion for the quarter. That exceeded the $32.32 billion consensus forecast from StreetAccount, which would have translated to growth of over 44%. In the preceding June quarter, Azure growth stood at 42%.
The company also restructured its financial reporting into two operating segments for the first time since 1998, replacing the three-segment model it had utilized for the past 11 years to divide its Azure, Office, and Windows divisions.
The newly designated Agents and Infra segment generated $76.80 billion in revenue, up nearly 25% year over year and outperforming the $75.63 billion analyst consensus. This division houses Azure, Microsoft 365 cloud offerings, productivity and server licensing, industry solutions, and support services. Within that division, Microsoft 365 cloud services contributed $27.78 billion, surpassing the $27.37 billion analyst projection.
The second new division, Devices and Consumer, brought in $15.48 billion in revenue, reflecting a 3% decline that nevertheless beat the $15.05 billion consensus estimate. The segment encompasses search and advertising, Xbox, hardware devices, and Windows operating system licenses sold to original equipment manufacturers. Within that unit, sales of devices and Windows licenses dropped 22%. Industry research firm Gartner attributed the decline to a broader slide in personal computer shipments during the quarter, driven by higher memory and storage costs that elevated final device prices.
Prior to the earnings release, Microsoft stock had risen approximately 10% for the year, trailing the S&P 500 index, which had gained 13% over the same timeframe. Operational restructuring accompanied the financial period; Microsoft announced plans during the fiscal first quarter to cut 4,800 jobs, followed by an announcement offering buyouts to as many as 60,000 employees as management attempts to balance expensive AI infrastructure investments with operational efficiency. During the same period, the company established a dedicated artificial intelligence implementation unit and unveiled a Copilot AI super application featuring advanced coding capabilities.
