#msft

#MSFT Q1 FY2027 earnings review: Azure +48% on a $45B capex bill, free cash flow −27% Revenue $92.3B, +19% YoY, against a ~$90.6B consensus; non-GAAP EPS $4.89, +18%, against ~$4.72. GAAP EPS $4.92 is +32%, but that is a base effect: last year's quarter carried a $3.1B ($0.41) loss on the OpenAI stake, this one a $207M ($0.03) gain. The growth is Azure: +48% to $33.2B, or $10.8B of the $14.6B added, ahead of Microsoft's own ~45% guide. Strengths • Microsoft Cloud $63.9B, +30%; Azure accelerated to +48% even with third-party capacity deliveries slipping into H2. • Commercial RPO $677B, +73%; the part due beyond 12 months grew 98%, weighted duration 2.3 years. • Operating income $45.9B, +21%, margin ~50% vs 49%; opex +6% with headcount −2%. • M365 commercial cloud +18% adjusted: paid seats +5%, the rest is ARPU from Copilot, E5 and E7 upsell. • Operating cash flow $58.0B, +29%; $64.5B of cash and short-term investments; $4.9B of debt repaid, none issued. • Q2 guide: revenue $96.0–97.1B (+18–19%), Azure +49–50% cc, M365 commercial cloud ~19% cc. Weaknesses • Capex $45.2B incl. $7.4B of finance leases; cash paid for PP&E $39.4B, 2x YoY. Q2 >$50B, ~$170B for calendar 2026. Free cash flow −27% to $18.6B. • Behind it: $364.6B of datacenter leases signed but not yet commenced (FY27–FY34), on top of $71.0B of finance lease liabilities already on the books. • OpenAI is 11% of revenue: $10.0B in the quarter, receivables up to $7.2B from $6.0B. Asked about concentration, management did not address it. • Gross margin 67.8% vs 69.0%; Microsoft Cloud gross margin down to 66% on the mix shift to Azure. • Commercial bookings −12% against last year's large Azure commitments; Windows OEM −27%, partner inventory still elevated, a mid-30s % decline guided for Q2. • M365 E3 and standalone SKUs missed on "weaker sales execution"; Q2 opex +9% includes a voluntary exit offer. • Buybacks slowed to $2.9B from $4.0B; the Copilot revenue figure was not updated. Bottom line A clean beat with growth accelerating, and a capital program growing faster than the cash that funds it: capex took two-thirds of operating cash flow, and the leases not yet started equal more than two years of spend at the ~$170B run rate. The $677B backlog says demand is contracted. The question for Q2 is whether Azure holds 49–50% with capacity, not demand, setting the ceiling, and how much of that backlog rests on one customer. #MSFT #earnings #Q3_2026 #BigTech