Microsoft's Azure grows 48 percent as capacity deliveries slip

What happened

Microsoft reported on Wednesday 28 October revenue of $92.3 billion for the quarter ended Wednesday 30 September, 19 percent more than a year earlier, with Azure revenue up 48 percent. ^{[1, 2]}

Operating income was $45.9 billion, up 21 percent, and net income was $36.6 billion, up 32 percent, the quarterly report shows. A year earlier, net losses on the company's investments in OpenAI cut net income by $3.1 billion; this quarter, gains on them added $207 million. ^{[1, 2]}

Why it matters

Capital expenditures, finance leases included, were $45.2 billion, below the $50 billion Microsoft had forecast in July, as Reuters reported then. Chief financial officer Amy Hood said on the call that 'some third-party capacity deliveries we expected in Q1 were delayed.' Cash paid for property and equipment was $39.4 billion, against $19.4 billion a year earlier. ^{[3, 2, 5]}

Two segments now

The quarter is the first under a segment structure Microsoft announced in September. Agents and Infra, which brings together its applications and agents, its models and Azure, brought in $76.8 billion, up 25 percent. Devices and Consumer brought in $15.5 billion, down 3 percent. ^{[1, 2, 7]}

Azure revenue was $33.2 billion, against $22.4 billion a year earlier, according to the 10-Q. Windows OEM and devices revenue was down 22 percent, which the filing ties to the prior year's lift from the end of Windows 10 support, inventory drawdowns and weaker PC demand. Contracted commercial revenue not yet recognized, the remaining performance obligation, was $677 billion, up 73 percent. ^{[2, 1]}

What the company expects

For the quarter to Thursday 31 December, Hood said Microsoft expects Azure revenue growth of 49 to 50 percent in constant currency and capital spending over $50 billion. She put calendar 2026 spending at approximately $170 billion 'due to the 3P capacity delays,' meaning third-party deliveries. In July the company had forecast $175 billion for the calendar year, Reuters reported. ^{[3, 5]}

'Customer demand continues to exceed available supply,' Hood said, and Fortune reported a revenue outlook of $96.0 billion to $97.1 billion for the quarter. The 10-Q lists $364.6 billion of leases, mostly for data centers, signed but not yet started, against $329.1 billion in the July filing, as Reuters reported. ^{[3, 4, 2, 5]}

What settles it next

The annual shareholders meeting is on Tuesday 8 December, the proxy statement says. Employees offered a voluntary exit must accept by the first week of December, Fortune reported, and Hood said the cost guidance includes an estimate for that offer. The quarter closes on Thursday 31 December, and its quarterly report will carry the spending and the capacity that arrived. ^{[6, 4, 3]}

Who it reaches

Microsoft (MSFT) is direct: the results and the outlook are its own. NVIDIA (NVDA) and AMD (AMD) are adjacent: Satya Nadella said the fleet grows 'with the latest innovations from NVIDIA and AMD alongside our own Maia systems.' He added that the first NVIDIA Vera Rubin GPUs were docked. ^[3]