REVENUEBeat +1.8%
EPSBeat +3.6%
Actuals vs. estimates
| Metric | Actual | Consensus | Surprise |
|---|---|---|---|
| Revenue | $92.28B | $90.62B | ▲ Beat +1.8% |
| EPS(non-GAAP diluted, excludes impact from investments in OpenAI) | $4.89 | $4.72 | ▲ Beat +3.6% |
Highlights & what matters
- Revenue of $92,279 million beat the $90,617 million estimate by 1.8%; adjusted diluted EPS of $4.89 beat the $4.72 estimate by 3.6%.
- Guidance is withheld from the release — Microsoft says it will give forward-looking guidance on the call — so commercial remaining performance obligation, up 73% to $677 billion, is the only forward figure disclosed.
- Azure grew 48% and Microsoft Cloud 30% to $63.9 billion; Agents and Infra revenue rose 25% to $76,795 million with $40,558 million of segment operating income against $32,718 million.
- The consumer half shrank: Devices and Consumer revenue fell 3% to $15,484 million, with Windows OEM and devices down 22% to $3,551 million.
- The one thing that matters: the signal is the contract book, not the P&L. Commercial RPO up 73% to $677 billion against 19% revenue growth means Azure's 48% is already sold; the cost is capital, with capex at $39,367 million against $19,394 million.
Key metrics
| Metric | Reported | Prior year | Change |
|---|---|---|---|
| Microsoft Cloud revenue | $63.9 billion | — | 30% (up 31% in constant currency) |
| Azure revenue growth | increased 48% | — | 48% |
| Commercial remaining performance obligation | $677 billion | — | 73% |
| Operating income | $45,915 | $37,961 | 21% |
| Windows OEM and Devices revenue | decreased 22% | — | (22)% |
| Additions to property and equipment | (39,367) | (19,394) | — |
Guidance changes
No financial guidance change disclosed.
Quality of earnings
- GAAP growth flatters the quarter; the adjusted line is the real rate. Net income rose 32% to $36,629 million on GAAP but 18% to $36,422 million adjusted, because the year-ago quarter carried a $3.1 billion OpenAI investment loss against a $207 million gain this year.
- Cash backs the earnings. Net cash from operations of $58,000 million ran well ahead of $36,629 million of net income and above the $45,057 million of a year earlier.
- Operating leverage is genuine, not cost-cut. Gross margin rose to $62,559 million from $53,630 million while sales and marketing was flat at $5,716 million against $5,717 million and general and administrative was $1,881 million against $1,806 million.
Gotchas & watch items
- The reported Microsoft 365 commercial cloud number is lower than the one led with: 17% as reported against the 18% adjusted figure, normalized for a 1-point prior-year in-period revenue recognition benefit.
- Deferred revenue is going the wrong way against the RPO story: short-term unearned revenue fell to $66,866 million from $72,965 million at June 30, and accounts receivable to $62,084 million from $80,876 million.
- The segments were recast this quarter: prior-period amounts are restated for the fiscal 2027 segment changes announced in September 2026, so Agents and Infra and Devices and Consumer growth rates are not comparable to previously published lines.
- Capital returns are shrinking as capex grows: $10.2 billion returned in the quarter, with buybacks of $4,379 million against $5,650 million a year ago, while capex more than doubled.