Microsoft: Azure grows 48 percent as data center spending doubles
Microsoft posted quarterly revenue of $92.3 billion, up 19 percent. Azure grew 48 percent, the contract backlog rose to $677 billion, and spending on data centers doubled.
Microsoft has reported a quarter in which cloud and AI carry the whole company. Revenue from its Azure cloud platform grew 48 percent, and total revenue rose 19 percent to $92.3 billion. At the same time, Microsoft doubled its spending on property and equipment, mostly data centers and servers, to $39.4 billion in three months.
The figures cover the first quarter of Microsoft's fiscal year 2027, July to September 2026. The company published its earnings release on Wednesday, October 28, and posted the headline numbers on X at 20:04 UTC.
Cloud growth accelerates
Microsoft Cloud, which combines Azure, the Microsoft 365 cloud and other cloud services, brought in $63.9 billion. That is 30 percent growth, and chief financial officer Amy Hood says growth accelerated. Azure alone went from $22.4 billion to $33.2 billion compared with the same quarter last year.
Operating income rose 21 percent to $45.9 billion. Net income was $36.6 billion, up 32 percent. Adjusted for the impact of its OpenAI investment, the increase was 18 percent. A year ago Microsoft took a $3.1 billion hit from the OpenAI investment in the same quarter; this year it booked a $207 million gain.
Hood says results exceeded expectations on revenue, operating income and earnings per share. The release does not say which expectations it is comparing against.
$677 billion in contracts
The order backlog is growing even faster. Commercial remaining performance obligation, the value of signed business contracts not yet recognised as revenue, rose 73 percent to $677 billion. Customers have already committed to large purchases of cloud and AI in the years ahead.
This year Microsoft split the business into two new segments. Agents and Infra, which includes Azure and the Microsoft 365 cloud among other things, brought in $76.8 billion, up 25 percent. Devices and Consumer fell 3 percent to $15.5 billion. Windows OEM and devices revenue fell 22 percent, and Xbox content and services fell 2 percent.
Chief executive Satya Nadella links the growth to customers wanting to "build and own their own intelligence", and to trust in the safety and security of AI agents.
Spending doubled
Additions to property and equipment, mainly data centers and servers, came to $39.4 billion in the quarter, compared with $19.4 billion a year earlier. Depreciation and amortisation rose from $8.1 billion to $11.7 billion. The release does not break out how much goes to AI, and it contains no guidance for the next quarter. Microsoft said it would give its outlook on an investor call at 2:30 p.m. Pacific time.
What it means for leaders
Our assessment: The numbers show that businesses worldwide are now spending large and growing amounts on cloud and AI with Microsoft, and that many have locked themselves into long contracts. For companies running on Azure and Microsoft 365, that means a supplier with a strong negotiating position and a big need to earn back its multibillion-dollar investments. It is worth watching prices for AI services and licences, and how dependent your own operations become on a single vendor, before the next agreement is up for renewal.
Sources and media
Illustration: AI-generated with Grok Bot / hogby.ai
