After Microsoft announced its financial results for the first quarter of fiscal year 2027, management stated during a conference call that Azure performed strongly this quarter, with improved efficiency being a key factor. CEO Satya Nadella mentioned that the long-term benefits of enterprise-level AI will be a process that spans over a decade. CFO Amy Hood explained that due to delays in third-party capacity delivery, capital expenditures slowed down in the first quarter, and it is expected that capital spending in the second quarter will exceed $50 billion, with an annual total of about $170 billion.
Wall Street Journal mentioned that on Wednesday after the U.S. stock market closed, Microsoft released its financial report for the first quarter of fiscal year 2027, with revenue increasing by 19% to $92.28 billion, exceeding analysts' expectations by 1.8%.
Microsoft Cloud Azure achieved a revenue growth rate of 48% this quarter, exceeding market expectations, and the guidance for the next quarter has been further raised to a fixed exchange rate growth rate of 49% to 50%.
During the teleconference, company management pointed out that behind the strong performance of Azure this quarter, improved efficiency was the key factor. Amy Hood explained that the engineering team continuously explored areas for efficiency improvement at the GPU and CPU levels, allowing Microsoft to allocate more computing power, which was previously constrained by supply, to the Foundry platform.
In addition, Amy Hood admitted that the pricing of token this quarter was higher than expected, and the high-quality models brought higher per token earnings, making an additional contribution to the quarterly performance.
Satya Nadella emphasizes that the Foundry platform has become a commercial hub for Microsoft's AI strategy. He pointed out that the AI deployment of enterprise customers is shifting from the trial phase to production deployment, and the focus has shifted from "the next technological highlight" to "whether a stable system can be built, model weights can be controlled, costs can be managed, and security can be ensured."
He compared the current implementation pace of the workload for the enterprise AI to the historical process of large-scale database application deployments in the past, and stated:
This is a matter that spans a decade, not a phenomenon that occurs in just a few quarters.
Capital expenditures for this quarter reached $45.2 billion, which is lower than earlier expectations, due to delays in the delivery of third-party computing power to the second half of the year. Amy Hood expects capital expenditures in the second quarter to exceed $50 billion, with a total of about $170 billion for the whole year. The pace will further accelerate in the second half of the year, with a focus on CPU (including higher-specification memory and storage) and GPU, as well as the delayed delivery of third-party computing power.
Amy Hood indicates that the company is confident in the return on each dollar of capital expenditure and expects to maintain positive free cash flow throughout the fiscal year 2027. Executives also specifically mentioned that among the various hyperscale cloud service providers, Microsoft can currently be considered a 'safe haven'.
In terms of financing strategy, Amy Hood stated that the company will flexibly utilize a variety of financing tools at the right time, including financial leasing and the bond market, but there is no urgent need at present. She said, "We have many options."
Azure Growth rate rises to 48%, with further upward guidance for the next quarter
In this quarter, Microsoft's most core cloud platform Azure saw revenue grow by 48% year-on-year, exceeding market expectations.
Amy Hood pointed out during the teleconference that this outstanding performance was mainly attributed to the improvement of Foundry's business and the enhanced monetization capabilities of CPU.
In the face of Wall Street's concerns about growth rates in the next quarter, Amy Hood provided a more optimistic outlook:
In terms of Azure, we expect the revenue growth rate calculated at a fixed exchange rate to reach 49% to 50%.
She emphasized that despite the delays in the third-party GPU service contract, Microsoft made up for this gap by improving platform efficiency in all aspects.
She stated that the current market situation is:
Customers' demand continues to exceed our available supply.
She further explained that the engineering team has done an excellent job in improving platform efficiency. This quarter, Microsoft identified and utilized the underutilized CPU production capacity, helping the company to meet the growing demands with its existing production capacity.
The ambition of AI: “Copilot is the new operating system for work”
If we consider the underlying infrastructure as the engine, then Copilot and the ecosystem of intelligent agents it brings about are Microsoft's ultimate weapon.
Satya Nadella stated at the meeting:
We regard Copilot as the new operating system for our work.
Centering around this "new OS", Microsoft showcased its commercial data. Satya Nadella revealed that since July, the number of automated tasks has almost doubled, with daily active users increasing by nearly 50% month-on-month and by more than 5 times year-on-year.
In addition, the number of customers with more than 50,000 Copilot seats has increased by more than 8 times year-on-year.
When asked about the development pace of AI enterprise-level applications, Satya Nadella stated that enterprise-level AI is not a short-term surge phenomenon where a few major customers make purchases over several quarters:
Enterprise-level business is not something that needs to be reviewed every quarter. It is a process that spans over a decade.
Executive responds to the secret of high profit margins: "The best solution is revenue growth"
While maintaining high revenue growth, Microsoft's operating margin still slightly increased to 50% this quarter.
In response to analysts' follow-up questions about "how to maintain high levels of both revenue and profit simultaneously," Amy Hood stated:
The best solution is revenue growth.
She pointed out that the essence of high profits lies not only in the expansion of revenue scale but also in a genuine improvement in efficiency. This efficiency is not merely about cutting costs, but rather about "being stable, safe, and reliable, delivering the highest quality products at the lowest possible cost."
Capital expenditure is subject to delays by third parties.
As a key indicator of the investment made by technology giant AI, Microsoft's capital expenditure this quarter was $45.2 billion. Management stated that due to external factors, the pace of investment was actually forced to slow down.
Amy Hood explained that the reason is that some of the third-party production capacity that was originally expected to be delivered in the first fiscal quarter has been delayed.
But this does not mean that Microsoft's commitment to investment has waned. Microsoft expects its capital expenditures for this calendar year to reach approximately $170 billion. Amy Hood emphasizes:
In the second half of this fiscal year, we currently expect capital expenditures to accelerate, mainly due to CPU (including higher memory and storage costs) and GPU, as well as the delivery of third-party production capacity that will shift into the second half of the year.
Microsoft stated that due to its strong core business, the company will continue to maintain positive free cash flow and will supplement funds through financing and other channels when necessary.
Key points for telephone Q&A
During the Q&A session, analysts asked follow-up questions regarding capital expenditure, the fixed exchange rate growth guidance for Azure, the proportion of workloads from corporate clients, the pay-as-you-go billing model for Copilot, and financing strategies.
Satya Nadella indicates that Microsoft will treat data centers, Foundry, Copilot, GitHub Copilot, Work IQ, Fabric IQ, and security governance as part of the same infrastructure, enhancing efficiency and flexibility in resource allocation through a unified resource pool.
He also stated that the workload for enterprise AI is truly underway, but this is not something that can be completed in just one quarter; rather, it is a process that will span over a decade. Regarding model selection, he believes that customers will be able to switch flexibly between cutting-edge models, open-weight models, and Microsoft's own MAI models. Microsoft aims to provide a model system that does not lock customers into a single choice.
Amy Hood indicates that Microsoft is confident in the return on every dollar of capital expenditure and also has sufficient financing flexibility, including tools such as financial leasing and the bond market.
She added that no specific numerical updates for Copilot were disclosed this quarter; only the growth trends in revenue and usage were discussed.
At the end of the call, Microsoft management stated that the company is embarking on the fiscal year 2027 with strong momentum. The growth rate of Microsoft's cloud services has accelerated, and improvements to products, along with enhancements to data center infrastructure and the efficiency of applications and agents, are continuously increasing the value created for customers and the results delivered by the company.
