Microsoft FY27 Q1 Revenue Hits Record $92.3 Billion as Azure Grows 48%

Microsoft reported record revenue of $92.3 billion for the first quarter of fiscal year 2027, a 19% increase year-over-year, driven largely by strong growth in its Azure cloud business.

Operating income increased 21% to $45.9 billion, while net income jumped 32% to $36.6 billion. However, the company’s Windows and Xbox businesses struggled during the quarter.

Azure revenue jumps 48% to $33.2 billion

According to Microsoft’s FY27 Q1 financial results, Azure generated $33.2 billion in quarterly revenue, an increase of 48% year-over-year. This marks an acceleration from the previous quarter’s 43% growth.

For the first time, Microsoft also disclosed Azure’s standalone quarterly revenue rather than reporting only its growth rate.

Microsoft 365 cloud revenue increased 17% to $27.8 billion, while Microsoft Cloud revenue reached $63.9 billion, up 30%. The company’s Agents and Infra business generated $76.8 billion, representing 25% growth.

Microsoft’s commercial remaining performance obligation also surged 73% to $677 billion, reflecting contracted revenue that the company has yet to recognize.

Windows revenue drops 27% as Xbox continues to struggle

Despite Microsoft’s record financial performance, its Windows and gaming businesses reported weaker results.

Windows OEM and devices revenue declined 22% to $3.6 billion, while Windows OEM revenue alone fell 27%.

Microsoft attributed the decline to strong PC upgrade demand ahead of Windows 10’s end of support in 2025, which created a difficult year-over-year comparison. Elevated PC inventory levels and weaker market demand also contributed to the decline.

Xbox revenue fell 2% to $5.4 billion, with Xbox content and services revenue also declining 2%. Microsoft cited lower third-party content and Game Pass revenue, partially offset by growth in first-party games.

The decline follows reports that Xbox sales plunged 27% in the US while PS5 sales increased 22%.

Other business segments delivered mixed results. Productivity and server licensing revenue fell 3% to $8.4 billion, while search and advertising revenue grew 10% to $6.6 billion. Industry solutions revenue increased 9% to $5.3 billion.

Microsoft spends $45.2 billion on AI infrastructure

Microsoft’s capital expenditure reached $45.2 billion during the quarter as the company continued investing heavily in cloud capacity and AI infrastructure.

The spending is expected to increase further. Microsoft forecasts capital expenditure exceeding $50 billion in the second quarter of fiscal 2027.

The company also expects Azure revenue growth to accelerate to between 49% and 50%, while total quarterly revenue could reach $96 billion to $97.1 billion, potentially setting another record.

The results highlight Microsoft’s growing dependence on cloud and AI services for revenue growth, even as traditional businesses such as Windows and Xbox face declining sales.

In other Microsoft news, the company recently introduced a voluntary exit offer covering 60,000 employees across four countries. It also tightened Xbox Store publishing rules to crack down on shovelware and duplicate achievement games.