Microsoft’s fiscal first-quarter 2026 results reflect how artificial intelligence has become the company’s primary growth engine, driving record cloud demand, expanding customer adoption, and reshaping its product ecosystem.
For the quarter ended September 30, 2025, Microsoft reported revenue of $77.7 billion, up 18 percent year over year, operating income of $38.0 billion, up 24 percent, and net income of $27.7 billion, up 12 percent.
CEO Satya Nadella said the company’s “planet-scale cloud and AI factory” and expanding Copilot family are generating “real-world impact.”
CFO Amy Hood noted that Microsoft exceeded expectations across revenue, operating income, and earnings per share, reflecting strong customer demand for its differentiated AI platform.
Microsoft Cloud revenue climbed 26 percent to $49.1 billion, and commercial remaining performance obligations increased 51 percent to $392 billion, driven by accelerating adoption of Azure’s AI infrastructure and services. The company’s renewed partnership with OpenAI, including an incremental $250 billion Azure commitment, secures long-term exclusivity for AI models and intellectual property through 2032 and strengthens Microsoft’s leadership in large-scale AI computing.
Microsoft has expanded total AI capacity by more than 80 percent this year and plans to double its datacenter footprint within two years. Its AI infrastructure, powered by NVIDIA’s GB300 clusters, is optimized for efficiency across training and inference workloads, supporting rapid growth in both enterprise and consumer AI applications.
In business segments, Productivity and Business Processes revenue rose 17 percent to $33.0 billion, led by Microsoft 365 Commercial cloud up 17 percent, Consumer cloud up 26 percent, LinkedIn up 10 percent, and Dynamics 365 up 18 percent.
Intelligent Cloud revenue increased 28 percent to $30.9 billion, with Azure and other cloud services up 40 percent. More Personal Computing delivered $13.8 billion, up 4 percent, supported by Windows OEM and Devices up 6 percent, Xbox content and services up 1 percent, and Search and news advertising excluding TAC up 16 percent.
AI innovation
AI innovation continues to accelerate through Microsoft’s Copilot ecosystem, now reaching 900 million users, with 150 million monthly active Copilot users across productivity, coding, security, and healthcare. Microsoft 365 Copilot adoption is the fastest in company history, used by over 90 percent of the Fortune 500, while GitHub Copilot, with 26 million users, has become the most widely used AI programming assistant. In healthcare, Dragon Copilot supported 17 million patient encounters in the quarter, up fivefold year-over-year, and in security, Copilot agents improved analyst efficiency by over six times in phishing detection.
Financially, Microsoft continues to balance heavy AI investment with profitability. Capital expenditures totaled $34.9 billion, nearly half directed to GPUs and CPUs for AI workloads, while free cash flow grew 33 percent to $25.7 billion. Despite increased infrastructure spending, operating margins remained robust at 49 percent, supported by sustained cloud efficiency gains.
With AI now embedded across every product and service, Microsoft’s combination of technological leadership, enterprise-scale infrastructure, and disciplined execution positions it as the dominant platform in commercial AI—driving durable growth and shaping the next era of digital transformation worldwide.
Rajani Baburajan
