Microsoft's cloud business remains strong, but its expenditures for expanding its AI business also continue to be high.
The financial report for the first quarter, released by this software giant on Wednesday, shows that there is still strong demand in the market for its AI service; at the same time, Microsoft is accelerating the deployment of more computing power, while its traditional software and gaming businesses are relatively lagging behind.
The company, headquartered in Redmond, Washington, stated that its revenue for the first fiscal quarter was $92.3 billion, a year-on-year increase of 19%, slightly exceeding the expectations of Wall Street analysts. Profits amounted to $36.6 billion, also slightly surpassing analysts' forecasts.
Its Azure cloud business grew by 48%, exceeding analysts' forecasts, which is a positive sign for investors. The company's stock price rose by more than 4% in after-hours trading.
Microsoft's investors have always hoped to see Azure continue to maintain high growth, and they expect the company to prove that its AI bets – such as on Copilot assistants – are generating considerable revenue. This is particularly important since both indicators can show whether Microsoft, as well as the entire AI industry, is still maintaining demand, especially at a time when tech giants are investing huge sums of money in building data centers.
In its previous quarterly report, Microsoft stated that it expected its capital expenditures for the 2026 calendar year to be around $175 billion. On Wednesday, the company reported that its quarterly capital expenditures were $45.2 billion, which was higher than the previous quarter but lower than what analysts anticipated. Microsoft is one of several so-called hyperscalable cloud service providers that are making significant investments to meet the computing power demands of AI; the market expects that Amazon, Microsoft, Google's parent company Alphabet, and Meta Platforms will together spend over $700 billion on capital expenditures in 2026, with the majority of that amount going towards data centers.
On Wednesday, as Microsoft released its financial report, several large technology companies were also releasing their performance figures intensively. Meta stated last week that capital expenditures this year would soar to a high of $145 billion. Alphabet also announced its financial results on Wednesday, while Amazon plans to release its financial report on Thursday.
Microsoft initially did not update the sales figures for Copilot, but it stated that its newly launched “Agents and Infra” business segments experienced a year-on-year growth of 25%, reaching $76.8 billion. In the previous quarterly report, Microsoft reported that the number of paid users for Copilot had reached 30 million, up from 20 million in the previous quarter.
Investors have been hoping to see the Copilot business accelerate its growth after a slow start. This year, Microsoft has reimagined Copilot, turning this service into a "super app" that covers programming, chatting, and autonomous functions. The company has also recently introduced new features to the Windows operating system, allowing users to collaborate with AI agents, and plans to integrate seamlessly with Copilot.
Microsoft has benefited from the AI craze, mainly due to its cloud computing services, which help AI companies train models and provide services through Azure. However, the company has also been working hard to bring computing power online and to strike a balance between the needs of its partners and those of its own proprietary AI models.
Earlier this week, Anthropic released its prospectus for its upcoming initial public offering, providing an insight into the benefits that Microsoft and other large-scale cloud service providers have gained from the demands of AI's laboratories. Anthropic has committed to purchasing at least $44.9 billion worth of computing power from Microsoft between November of this year and May 2033, regardless of the actual usage. This is part of a commitment by Anthropic to spend at least $389.9 billion on computing power, with targets including companies such as Amazon, Alphabet, and SpaceXAI.
As Microsoft released its report on Wednesday, the company, which has a history of 51 years, is undergoing significant changes. This week, the company offered a buyout package to approximately 60,000 employees, which accounts for about 27% of the total workforce, as it continues to transform towards AI and thus faces the pressure to cut costs. Eligible employees must accept the offer before the first week of December, but Microsoft expects that less than 10% of the staff will take up this offer.
In July this year, Microsoft laid off approximately 4,800 employees, following more than 15,000 layoffs since 2025. Many of the recent layoffs were concentrated in the underperforming Xbox department, which has been dragging down the overall financial performance.
On Wednesday, Microsoft stated that revenue from Xbox content and services decreased by 2%, while hardware revenue fell by 14%. Microsoft's Windows OEM and Devices revenues also decreased by 22%, dragging down its overall Devices and Consumer business segments.
