Azure revenue rises 48% to $33.2 billion in Microsoft's fiscal Q1

Microsoft reported Azure revenue of $33.2 billion for its fiscal first quarter ended 30 September, up 48% from $22.4 billion a year earlier. Total revenue rose 19% to a record $92.3 billion, the company said, marking its tenth consecutive quarter of record revenue.

Azure is now Microsoft's largest product line, at about 36% of revenue. Microsoft Cloud, the broader measure that includes Azure and Microsoft 365, reached $63.9 billion, up 30%. Microsoft 365 contributed nearly $28 billion. Operating income rose 21% to $45.9 billion. Microsoft reorganized reporting into Agents and Infra, which rose 25% to $76.8 billion, and Devices and Consumer, which fell 3% to $15.5 billion; Windows OEM and devices revenue fell 22%.

Capital spending set to rise above $50 billion

Capital expenditures reached $45.2 billion, a quarterly record and up 30% from a year earlier. CFO Amy Hood said spending would return above $50 billion in the current quarter, and Microsoft said full-year capital expenditures would remain at a high level. About 75% of capex is directed toward short-cycle hardware assets, including CPUs and GPUs, the company said.

Microsoft said capex came in below its previous guidance because of delays in third-party GPU-as-a-service capacity, not a reduction in long-term investment. Additions to property and equipment on the cash-flow statement were $39.4 billion, more than double the $19.4 billion a year earlier. Free cash flow was $18.6 billion, and operating cash flow rose 29% to $58 billion.

Commercial remaining performance obligation, contracted revenue not yet recognized, rose 73% to $677 billion. That is a backlog, not cash. Microsoft still has to build and run the capacity to serve it.

Profit and AI revenue

GAAP net income rose 32% to $36.6 billion. Adjusted net income, which removes the impact of Microsoft's OpenAI investments, rose 18% to $36.4 billion. The prior-year GAAP comparison was depressed by investment valuation losses, so the 32% growth rate overstates underlying profit growth.

Revenue tied to OpenAI commercial arrangements was $10 billion, about 11% of total revenue. Copilot daily users rose nearly 50% from the previous quarter and more than fivefold from a year earlier, CEO Satya Nadella said. The number of customers with more than 50,000 Copilot seats rose eightfold year over year.

What happens next

For the December quarter, Microsoft guided total revenue to $96 billion to $97.1 billion and Azure growth of 49% to 50% excluding currency effects. Hood had guided Azure growth of 44% to 45% for the September quarter on the July call; the 48% result beat that range. Azure also beat analysts' consensus of $32.3 billion.

The next test is whether the $677 billion backlog converts into recognized revenue faster than the cost of the capacity needed to serve it. Microsoft said customer demand continues to exceed available supply, and the December quarter will show whether capacity additions close that gap.