The short version
Microsoft (MSFT) reported on Wednesday and the shares rose about 4% in extended trading.
Azure grew 48%, and for the first time Microsoft disclosed Azure's revenue in dollars: $33.17 billion, now its biggest single business.
The number that actually moved the stock was guidance. Finance chief Amy Hood told analysts to expect Azure growth of 49-50% next quarter in constant currency, against a consensus of about 45.1%.
That is a cloud business accelerating at enormous scale, which is rarer than it sounds.
The whole quarter beat: revenue $92.28 billion, up 19%, against about $90.75 billion expected. Adjusted earnings of $4.89 against $4.72 expected. Operating income up 21% to $45.9 billion.
And it is spending heavily to get there. Capital expenditure hit $39.4 billion, more than double a year ago, free cash flow fell 27%, and management guided capex above $50 billion next quarter.
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What Microsoft reported
- 💵 Revenue: $92.28 billion, up 19%, against about $90.75 billion expected.
- 📊 Adjusted earnings: $4.89 a share, up 18%, against $4.72 expected. On a reported basis, earnings were $4.92, up 32%.
- 🏢 Operating income: $45.9 billion, up 21%.
- ☁️ Azure revenue grew 48%, with Microsoft disclosing the dollar figure for the first time: $33.17 billion.
- 🏗️ Capital expenditure: $39.37 billion, more than double a year earlier.
- 📉 Free cash flow fell 27% year on year.
One accounting note worth knowing: Microsoft's adjusted figures exclude the impact of its investments in OpenAI. That's why reported earnings rose 32% while adjusted earnings rose 18%. Neither is wrong; they answer different questions.
The number that moved the shares
Guidance, not results.
Microsoft guided to second-quarter revenue of $96 to $97.1 billion and, crucially, Azure growth of 49-50% in constant currency. Analysts had expected about 45.1%.
Why that matters more than the quarter just reported: a business the size of Azure should slow down as it grows. Growing 48% and then guiding higher means demand is arriving faster than capacity, and it answers the question hanging over the whole sector, which is whether AI spending is converting into recurring revenue or one-off projects.
The backlog supports it. Microsoft's commercial remaining performance obligation, which is contracted work not yet delivered, rose 84% to $678 billion in the last fiscal year.
And Azure is now the company's biggest single business, which is a milestone for a company most people still associate with Windows and Office.
Two cloud giants, one day apart, opposite reactions
Alphabet reported the night before. Microsoft reported on Wednesday. Both are spending enormously on AI. One fell, one rose.
- 🔵 Alphabet: Google Cloud revenue up 103%, company operating income up 30%, capital spending $51.4 billion, free cash flow negative $9.1 billion. The shares fell sharply.
- 🟢 Microsoft: Azure up 48%, operating income up 21%, capital spending $39.4 billion, free cash flow down 27%. The shares rose about 4%.
Google's cloud grew twice as fast. Its shares fell.
What separated them:
- 📈 Microsoft guided higher. Azure accelerating to 49-50% against a 45% consensus gave investors a forward number to hold on to.
- 📉 Alphabet's earnings fell on unrealised investment losses, including an $8.2 billion paper loss on SpaceX, which muddied an otherwise strong quarter.
- 💸 Alphabet's free cash flow went negative. Microsoft's fell 27% but stayed positive, which is a different conversation.
The lesson: when two companies in the same business report in the same week, the market is not grading them on growth. It is grading them on what each told investors about next quarter.
And it echoes something we keep finding: results describe the past, guidance describes the future, and share prices live in the future. It is why Spotify rose 7% on an earnings miss and Netflix fell after growing profit 49%.
The bill is going up, not down
Capital expenditure was $39.37 billion in the quarter, more than double a year earlier. Management guided it above $50 billion next quarter.
Free cash flow fell 27% year on year as a result. Microsoft is converting cash into data centres as fast as it can build them.
The honest framing: this is the same decision Alphabet, Meta and Amazon have all made. The difference is that Microsoft currently has a guidance number that makes the spending look like a response to demand rather than a bet on it.
The same build-out runs through everything we have covered this month: Meta raising about $97 billion, GE Vernova's power-equipment orders nearly doubling, and hard drive prices up around 50% because data centres bought the supply.
What could go wrong
- 💸 Spending is accelerating faster than cash generation. Capex more than doubled, free cash flow fell 27%, and next quarter's capex is guided above $50 billion. That gap has to close eventually, either through revenue or through slower building.
- 📅 Guidance is a promise, not a result. Azure at 49-50% is what management expects. The next report is where it gets tested, and the bar is now set by Microsoft itself.
- 🖥️ Today's capex is tomorrow's depreciation. Data centre equipment is written down over years, and those charges land on future profits regardless of how revenue develops.
- 🤝 The OpenAI relationship cuts both ways. Adjusted earnings exclude its impact precisely because it is large and volatile, and it is a dependency as well as an advantage.
- 📱 The consumer side is shrinking. Devices and Consumer revenue fell 3%. The company is increasingly one very large cloud business with other things attached.
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What should investors take from this?
Read the guidance before you read the quarter.
The results tell you what happened. The guidance tells you what management believes is coming, and that is what the share price responds to. Microsoft beat on revenue and earnings, but the 4% rise came from a single forward number.
Three habits:
- 🔭 Find the forward number in any results release, then compare it with what analysts expected. That gap explains most share reactions.
- 📚 Check the backlog where companies publish one. Microsoft's commercial remaining performance obligation rose 84% to $678 billion, which is contracted work rather than hope.
- ⚖️ Compare like with like, in the same week. Alphabet and Microsoft reported a day apart with similar strategies and opposite reactions. The comparison teaches more than either alone.
And one more thing worth knowing: you may already own this. Microsoft is one of the largest holdings in every S&P 500 fund, and the top ten companies make up roughly 38% of the index. So if you hold VOO or any S&P 500 tracker, a meaningful slice of your money is already riding on this quarter’s guidance, and on the AI theme more broadly.
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FAQs
What did Microsoft report?
Revenue of $92.28 billion, up 19%, against about $90.75 billion expected. Adjusted earnings of $4.89 a share against $4.72 expected, with reported earnings of $4.92. Operating income rose 21% to $45.9 billion. Azure revenue grew 48% to $33.17 billion, disclosed in dollars for the first time.
Why did Microsoft shares rise?
Guidance. The company guided to second-quarter revenue of $96-97.1 billion and Azure growth of 49-50% in constant currency, against a consensus of about 45.1%. Azure accelerating at that scale was the surprise.
How much is Microsoft spending on AI?
Capital expenditure was $39.37 billion in the quarter, more than double a year earlier, and management guided it above $50 billion for the next quarter. Free cash flow fell 27% year on year.
Why do Microsoft's adjusted and reported earnings differ?
Adjusted figures exclude the impact of Microsoft's investments in OpenAI. Reported earnings rose 32% to $4.92 while adjusted earnings rose 18% to $4.89.
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