Microsoft (MSFT) Q1 FY26: Strong AI Demand Drives Growth
Earnings Release Date: October 29, 2025
Quarter Ended: September 30, 2025
Key Points
- Revenue: $62.0B (+13% YoY)
- Operating Income: $27.0B (+18% YoY)
- Net Income: $23.4B (+23% YoY)
- GAAP EPS: $3.12 (vs $2.53), +23% YoY
- Gross Margin: 71% (+1 pt YoY)
- Operating Margin: 44% (+2 pts YoY)
- Free Cash Flow: $20.7B
Quarter Highlights
- Cloud momentum:
- Server products and cloud services revenue up 21% YoY.
- Azure and other cloud services grew 28% YoY, driven by AI demand and consumption-based growth.
- Productivity and Business Processes: Revenue $19.3B, +11% YoY
- More Personal Computing: Revenue $13.8B, +4% YoY
- LinkedIn revenue: +9% YoY
- Office 365 Commercial revenue: +15% YoY
- Microsoft Cloud: $35.1B revenue, +24% YoY
AI & CapEx Commentary
- Microsoft stated that AI demand is translating into stronger Azure growth, and emphasized “healthy growth in both AI and traditional services.”
- The company noted “higher capital expenditures to support cloud demand, including investments in AI infrastructure.”
- This included expanded data center capacity to meet growing generative AI workloads.
Financial Summary
| Metric | Q1 FY26 | Q1 FY25 | YoY Change |
|---|---|---|---|
| Revenue | $62.0B | $55.2B | +13% |
| Net Income | $23.4B | $19.0B | +23% |
| GAAP EPS | $3.12 | $2.53 | +23% |
| Gross Margin | 71% | 70% | +1 pt |
| Operating Income | $27.0B | $22.7B | +18% |
| Operating Margin | 44% | 42% | +2 pts |
| Free Cash Flow | $20.7B | $19.4B | +7% |
Capital Return
- Returned $9.1B to shareholders through share repurchases and dividends in the quarter.
- CapEx not broken out numerically, but described as elevated and tied directly to AI infrastructure scale-up.
About Microsoft
Microsoft Corporation (NASDAQ: MSFT) is a global technology company delivering software, cloud infrastructure, and AI solutions. Its business spans productivity, developer tools, cloud computing, and devices, anchored by platforms such as Azure, Office, Windows, and GitHub.
Key Takeaways
- Azure growth accelerated to 28% YoY, led by surging AI usage.
- AI infrastructure investment is now a central theme of Microsoft’s CapEx strategy.
- Gross and operating margins expanded, showing efficient scaling despite elevated spend.
- Free cash flow remained strong at $20.7B, even as CapEx rose to support future AI workloads.
- Microsoft Cloud posted 24% YoY growth, reinforcing Microsoft’s positioning at the core of enterprise AI transformation.