What thresholds did Azure growth exceed?

  • Microsoft Azure revenue grew 48% year over year at constant currency in the first quarter of fiscal 2027, accelerating by 6 percentage points from the previous quarter and exceeding the company’s prior guidance of 44%–45%.
  • Evercore ISI said informal buy-side expectations for Azure growth before the earnings release were approximately 47%; the actual result was about 1 percentage point higher. Given the first-quarter performance and recent beats against initial guidance, the firm believes second-quarter growth guidance of 46%–47% would be acceptable to investors.

How did overall revenue and earnings perform?

  • First-quarter total revenue was $92.3 billion, up 19% year over year, above Evercore ISI’s forecast of $90.5 billion and the consensus estimate of $90.6 billion. Under the new reporting structure, agent and infrastructure revenue rose 25% at constant currency to $76.8 billion, while devices and consumer revenue fell 3% to $15.5 billion.
  • The operating margin was 49.8%, above the firm’s and the market’s respective forecasts of 48.5% and 48.6%. Non-GAAP earnings per share excluding the impact of OpenAI were $4.89, up 19% at constant currency and above both forecasts of $4.71.

Why are cash flow and capacity deployment the next focus?

  • First-quarter free cash flow was $18.6 billion, well above Evercore ISI’s forecast of $10.4 billion and the consensus estimate of $8 billion. The firm is watching whether management can reaffirm its expectation of positive free cash flow for fiscal 2027 while continuing to invest heavily to meet demand.
  • The conversion of infrastructure construction into incremental Azure revenue also depends on the time needed for deployment and the allocation between owned and third-party capacity. The firm is also watching growth in paid Copilot seats and usage, as well as the extent to which expense discipline offsets AI investment.
  • Evercore ISI believes the share price has further upside if second-quarter Azure growth guidance reaches 46%–47% and management reaffirms positive free cash flow for the full year. The firm rates Microsoft Outperform with a price target of $635.