Azure Grew 48%: What Did Microsoft's Earnings Say About AI Costs?

Microsoft's AI cloud is growing faster, and so is the bill. On October 28, Microsoft reported fiscal first-quarter revenue of $92.3 billion, up 19%, with Azure up 48%, ahead of expectations. It also told investors that Azure growth should reach 49% to 50% next quarter while capital spending climbs above $50 billion.

This article is for information only, not investment advice. Speak with a licensed financial advisor before making any financial decisions.

What Were Microsoft's Headline Numbers?

Strong across the board:

• Revenue: $92.3 billion, up 19%, versus about $90.6 billion expected

• Operating income: $45.9 billion, up 21%

• Net income: $36.6 billion, up 32% on a GAAP basis, and $36.4 billion, up 18%, on a non-GAAP basis

• Earnings per share: $4.92 GAAP and $4.89 non-GAAP versus about $4.72 expected

• Microsoft Cloud revenue: $63.9 billion, up 30%

• Free cash flow: down 27% to $18.6 billion, according to CNBC

Microsoft returned $10.2 billion to shareholders through dividends and buybacks.

Why Do the GAAP and Non-GAAP Profit Growth Rates Differ?

Because Microsoft's adjusted figures exclude its OpenAI investment. Microsoft says non-GAAP results exclude the impact of its investments in OpenAI. This quarter, net gains from OpenAI investments added $207 million to net income, or $0.03 per share. A year earlier, net losses from those investments cut $3.1 billion from net income. That swing explains why GAAP profit grew 32% while the non-GAAP figure grew 18%.

How Fast Did Azure Grow, and What Comes Next?

Faster than expected, and guidance points higher. Azure revenue grew 48%, versus 44.8% expected, and was $33.17 billion, up from about $22.4 billion a year earlier. For the next quarter, Hood guided to Azure growth of 49% to 50% in constant currency, and revenue of $96 billion to $97.1 billion. She said customer demand still exceeds supply, and that some third-party capacity deliveries expected in the quarter were delayed. Microsoft added 24 new data centers during the period.

Why Are There Two Different Capex Numbers?

They measure different things. $45.2 billion is capital expenditures including finance leases, up about 30% and slightly below the $45.9 billion analysts expected. $39.4 billion is cash spent on property and equipment, which 24/7 Wall St reported as more than double a year ago. Both figures are being quoted, which is why reports differ. About 75% of capital spending is on short-lived assets such as GPUs and CPUs. Hood said calendar-year 2026 capex should reach about $170 billion, and next quarter should exceed $50 billion.

What Did Microsoft Say About Copilot and the Voluntary Exit Offer?

Usage is up, but Microsoft did not give a seat count. Nadella said Microsoft 365 Copilot daily users rose about 50% from the prior quarter, and the number of customers with more than 50,000 Copilot seats rose more than eightfold year over year. Volkswagen plans to roll Copilot out to more than 330,000 employees. Microsoft did not disclose paid seats this quarter, after reporting over 30 million in July. Hood said the new Microsoft 365 E7 bundle already has millions of seats. On costs, Hood said guidance across cost of revenue and operating expenses includes an estimate for the voluntary exit offer that Microsoft announced on October 26 to about 60,000 employees.

What Does This Mean for Businesses?

Microsoft's results show AI demand is real, and that capacity is still the limit.

• Plan for tight capacity. Microsoft says demand exceeds supply, which can affect timelines for AI projects on Azure

• Watch Copilot pricing and seats. Copilot usage is growing, and Microsoft is shifting toward premium bundles

• Keep options open. Copilot now offers both OpenAI and Anthropic models, the same rivals at the center of the AI price war

Investors are watching AI spending closely, and this report gave them both strong growth and larger bills.

Our AI services team can help you plan AI workloads and costs across cloud platforms.