Microsoft reveals strong cloud growth amid financial reporting overhaul
5 min read
Summary
Microsoft just posted the first quarter of its 2027 fiscal financial results. The software maker made 92.3billioninrevenueandanetincomeof33.6 billion during Q1. Revenue is up 19 percent, and net income has increased by 32 percent.
Microsoft reveals strong cloud growth amid financial reporting overhaul
Windows and Xbox revenues have declined during Microsoft’s first quarter of the 2027 financial year.
Windows and Xbox revenues have declined during Microsoft’s first quarter of the 2027 financial year.
It’s a new financial year for Microsoft, so the company is changing up how it reports its finances by splitting its businesses into two segments for the first time. Gone are the previous segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. It’s now just Agents and Infra, and Devices and Consumer.
Agents and Infra, which includes businesses like Azure, Microsoft 365 commercial and consumer, and server products, makes up 83 percent (76.8billion)oftheoverall92.3 billion of Microsoft’s revenue and has increased 25 percent year-over-year. The big changes to Microsoft’s financial reporting also mean we will now see the company disclose Azure revenue on a quarterly basis. Azure contributed 33.17billioninrevenuethisquarter,up48percentyear−over−year.DevicesandConsumer,whichincludesWindows,Xbox,Surface,andMicrosoft’ssearchandadvertisingbusinesses,makesuptheremaining17percent(15.5 billion) of Microsoft’s 92.3billioninrevenuesthisquarter—adecreaseofthreepercent.WindowsOEManddevicesrevenueisdown22percentyear−over−year,amidaRAMageddoncrisisthathasseentheoverallPCmarket[droppedby20percent](/gadgets/1017144/global−pc−shipments−dropped−q3−2026−ram)intherecentquarter.MicrosoftblamestherevenuedroponthebenefitofWindows10endofsupportduringtheprioryear,aswellasOEMinventorydrawdownsandaweakerPCmarket.Microsoftlaunched[Intel−](/news/933269/microsoft−surface−pro−12−surface−laptop−8−specs−pricing−release−date)and[Qualcomm−powered](/tech/950146/microsoft−surface−laptop−8−surface−pro−12−snapdragon−x2−specs−price)SurfacePro12andSurfaceLaptop8devicesjustbeforeitsnewfinancialyearbegan,andthecompanyeven[refresheditssmallerSurfaceProandSurfaceLaptop](/news/999195/microsoft−surface−pro−12−inch−surface−laptop−13−inch−qualcomm−x2−plus)withQualcomm’sX2Pluschipsduringthequarter.Surfacepricesarehigherthanever[thankstoRAMageddon](/tech/911322/microsoft−surface−price−increase−ram),andthePCmarketlookslikeit’sgoingtogothroughaverytoughtimeduringMicrosoft’s2027financialyearandbeyond.MicrosoftCFOAmyHoodsaidonthecompany’searningscallthatsheexpectsWindowsOEMrevenuetodeclineagainnextquarter,around“themid30s,”andadeclineisexpectedtocontinuethroughoutthe2027financialyear.MicrosoftCEOSatyaNadellaalsoremarkedonthecompany’s[newhybridAIpushforWindows](/tech/1008801/microsoft−windows−surface−event−hybrid−ai−notepad)duringtheearningscall.“Weareexecutingonourvisiontobringhybridintelligencetoeverydeskineveryhome,makingeveryPCasecureagentbox,”saidNadella.“Asmorecapablemodelsrunlocally,weseeanopportunitytomakemoreintelligenceeffectivelyunmetered.”MicrosoftandNvidiaunveileda[rangeofRTXSparklaptops](/tech/1011996/microsoft−windows−rtx−spark−platform−changes−notepad)earlierthismonth,includingtheSurfaceLaptopUltra.Thelaptopsshipwithupto128GBofunifiedmemory,andarecapableofrunningrecentfrontiermodelslocally.OverontheXboxside,hardwarerevenuehasdeclinedonceagainyear−over−year.Xboxhardwarerevenueisdown14percent.Xboxcontentandservices,whichincludesGamePass,isdown2percent,too.MicrosoftisstillnotgivinganupdateonGamePasssubscribernumbers,afterthecompanylastreportedithad[34millionsubscribers](/2024/2/15/23570040/microsoft−xbox−game−pass−subscriber−numbers−34−million)morethantwoyearsago.OverallXboxrevenueisdown2percent.Thefirstquarterofthe2027financialyearforXboxhasbeendominatedbya“reset”withthousandsoflayoffsandstudiosspunoff.Thelayoffsaren’toveryet,withrumorsmorecouldarriveinNovemberandJanuary.[Inamemo](/games/973520/xbox−ceo−memo−one−year−growth)earlierthisyear,XboxCEOAshaSharmasaid“wewillreturnXboxtoplayerandrevenuegrowth”bytheendoffiscalyear2027(whichrunsthroughnextJune).Theaim,asSharmaputsit,isto“scalewhatworks”sothatbyfiscalyear2030Xboxis“halfwaytoourlong−termdaily−playergoalwithsustaineddouble−digitgrowthinplayersandengagementandindustryleadingmargins.”HoodsaysXboxhardwarerevenuewilldeclineagainnextquarter,butXboxcontentandservicesrevenueisexpectedtoincreaseinthe“midtohighsingledigits.”Microsoft’scloudrevenueswerereallythestaroftheearningsshowagainthisquarter,aphraseIseemtoalwayswriteeveryfewmonths.MicrosoftCloudrevenuecontributed63.9 billion towards Microsoft’s revenues this quarter, almost 70 percent. That’s up 30 percent year-over-year, thanks to strong demand for Azure and Microsoft 365 commercial cloud.
Microsoft 365 commercial cloud revenue itself also grew 18 percent, thanks to higher revenue per user and upselling of premium options like Microsoft 365 Copilot, E5, and E7. Microsoft 365 consumer cloud revenue has also grown by 17 percent, driven by growth in revenue per user and subscriber growth of 7 percent.
Update, October 28th: Article updated with comments from Microsoft CFO Amy Hood and Microsoft CEO Satya Nadella.
