Microsoft Q1 2026 earnings: cloud and AI growth, OpenAI stake dents profit
Microsoft's revenue rose 18% and cloud growth accelerated, though an accounting loss tied to its OpenAI stake reduced reported net income.
| Q1 2026 | Reported |
|---|---|
| EPS | $3.72 |
| Revenue | $77.67B |
Figures as reported by the company to the SEC for the quarter ended September 30, 2025. Analyst estimates are not part of a filing, so no comparison to expectations is shown.
Key takeaways
- Total revenue reached $77.7 billion, up 18% year-over-year, with growth reported across all three of Microsoft’s business segments: productivity software (led by Microsoft 365 cloud subscriptions), cloud and enterprise services (led by Azure), and personal computing (led by Windows and search advertising, partly offset by weaker device and Xbox hardware sales).
- Azure and other cloud services revenue grew 40% from a year earlier, and the Intelligent Cloud segment that houses it brought in $30.9 billion, up 28%. Combined “Microsoft Cloud” revenue across all products hit $49.1 billion.
- Reported net income and earnings per share were reduced by roughly $3.1 billion and $0.41 per share because of a paper loss tied to Microsoft’s investment in OpenAI. This is an accounting entry reflecting OpenAI’s own results, not cash leaving Microsoft’s business.
- Trailing-twelve-month profitability stayed strong, with gross margin near 68% and operating margin near 47%, meaning the company kept converting a large share of each sales dollar into profit even while ramping up spending on AI infrastructure.
- Capital spending on data centers and AI hardware such as chips, servers and leases came in at $34.9 billion for the quarter, above what the company had previously guided, and management said the pace of this spending will keep increasing through the rest of the fiscal year.
- CFO Amy Hood said Microsoft still cannot fully keep up with customer demand for AI computing capacity, telling investors “we know we’re behind, we do need to spend,” as cloud supply constraints are expected to persist into next year.
- CEO Satya Nadella pointed to broad adoption of Microsoft’s AI assistant products, saying the company’s cloud and AI infrastructure paired with Copilot tools “across high value domains” is driving wide usage and real-world impact for customers.
- For the current quarter, Microsoft guided investors to expect revenue between $79.5 billion and $80.6 billion.
- Coverage of the results highlighted that Microsoft plans to increase AI computing capacity by roughly 80% this fiscal year and nearly double its data center footprint over the next two years to meet demand.
Q1 2026 in context
| Metric | Sep 2025 | Sep 2024 | Change |
|---|---|---|---|
| Revenue | $77.7B | $65.6B | +18.4% |
| Net income | $27.7B | $24.7B | +12.5% |
| Free cash flow | $25.7B | $19.3B | +33.3% |
| Diluted EPS | $3.72 | $3.30 | +12.7% |
| Gross margin | 69.0% | 69.4% | -0.3 pts |
| Operating margin | 48.9% | 46.6% | +2.3 pts |
| Net margin | 35.7% | 37.6% | -1.9 pts |
Figures for the quarter ended Sep 2025 and the quarter ended Sep 2024, as reported to the SEC.
Each company's quarter ending in calendar Q3 '25, as reported to the SEC. A peer that reported no revenue figure for that quarter is left out.
How the stock took it
Microsoft Corporation closed at $542.07 on Oct 28, 2025, the last session before the report, and at $525.76 on Oct 30, 2025, the first session after it — -3.0% across the report.
Closes from the market's daily record. Each figure spans the report date — from the last session that closed before it to the first that closed after — because a company may report before the open or after the close.
Sources: company report · earnings call · MSDynamicsWorld