Microsoft earnings: Azure accelerates, but investment returns remain the test
We now forecast mildly better revenue growth and EPS growth, alongside more intense near-term cash flow pressure.
Mentioned: Microsoft Corp (MSFT)
Key Morningstar metrics for Microsoft
- Fair Value Estimate: $600.00
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What we thought of Microsoft’s earnings
Microsoft’s MSFT fiscal 2027 first-quarter revenue increased 19% to $92.3 billion. Earnings per share excluding gains and losses on OpenAI investments rose 18%, with Azure and Microsoft 365 cloud leading the way. Both revenue and earnings were slightly ahead of FactSet consensus.
Why it matters: Azure and Microsoft 365 cloud led revenue growth. Azure was again the key focus of the quarter, with solid results ahead of management’s guidance, and the outlook for next quarter shows additional acceleration (growing 50% compared with 45%).
- This supports our view that the company’s enterprise relationships are converting artificial intelligence demand into durable revenue, with Microsoft set to be a key beneficiary from multiple revenue streams, including direct CPU and GPU workloads, as Foundry revenue tripled year over year.
- Microsoft 365 commercial cloud revenue increased 18% in constant currency against 5% seat growth, supporting our revenue per customer thesis. We were encouraged by usage-based Copilot customers growing 75% over the quarter.
The bottom line: We maintain our $600 per share fair value estimate for wide-moat Microsoft. We made a number of updates to our forecasts after transferring coverage to a new analyst. We now forecast mildly better revenue growth and EPS growth, alongside more intense near-term cash flow pressure.
- While shares initially reacted positively, the broader selloff in technology and AI-related stocks on Oct. 29 is likely a drag. Shares are within 12% of our fair value estimate and up roughly 50% from recent March and June lows, trading in 3-star range.
- We raised our capital expenditure forecasts materially, which drove our revenue projection increases. Coincidentally, capex in the first quarter was lower than consensus expectations, but management predicts a reacceleration in the fiscal second half.
Coming up: Management still expects to be cash flow positive this year, with the AI buildout remaining self-funded, at least for now.
Source: Morningstar. Data as of Oct. 29, 2026, 10:29 EDT
