💰 Market Cap: $4.0T | 🏢 228K Employees | 🌍 Global Cloud Leader

👨‍💼 CEO Satya Nadella | 🎯 Cloud & AI Transformation | 🇺🇸 Redmond, WA

$522.14

📉 -$19.93 (-3.68%) After Hours

Down from $542.07 Close | Q1 FY2026

🚀 Needs:

Azure sustains 40%+ growth as $392B RPO converts at accelerating pace • Microsoft 365 Copilot reaches 200M+ MAU with 90%+ Fortune 500 penetration at premium pricing • GitHub Copilot expands from 26M to 50M+ developers at $30/seat/month • Data center capacity doubles as planned with 80% increase in AI capacity materializing • OpenAI $250B Azure commitment delivers at full scale with exclusive IP and API rights through 2030 • Operating margins expand to 50%+ as agent systems scale with Foundry at 80K customers growing 3x

⚖️ Needs:

Azure maintains 37%+ growth in Q2 per guidance despite capacity constraints through FY2026 • Microsoft Cloud revenue sustains 25%+ growth reaching $50B+ quarterly run rate • M365 Copilot adoption reaches 150M MAU with steady Fortune 500 expansion • Commercial bookings normalize to 20-30% growth after OpenAI contract comp • CapEx increases sequentially with higher FY26 growth rate than FY25 maintaining infrastructure lead • Operating margins hold at 49% despite AI investments with efficiency gains offsetting costs

⚠️ Risk:

Capacity constraints persist causing Azure to lose share as workloads shift to AWS and Google Cloud • OpenAI $250B commitment underdelivers or shifts to competitors after exclusivity ends in 2030 • CapEx explosion to $140B+ annually with short-lived GPU assets creating massive depreciation drag • Customer concentration risk materializes with top customers representing oversized RPO portion • AI bubble bursts as enterprise ROI fails to materialize causing Copilot adoption to stall • Gross margins compress to 65% as AI infrastructure costs and competition force aggressive pricing

💰

What Happened

Revenue Blowout: $77.7B (+18% YoY) crushing expectations across all segments

EPS Beat: $4.13 adjusted for OpenAI investment, up 23% YoY showing operational leverage

Azure Acceleration: +40% revenue growth (39% constant currency) with demand exceeding supply

Microsoft Cloud: $49.1B revenue (+26% YoY) surpassing expectations and guidance

Commercial Bookings: +112% driven by OpenAI Azure commitments and $100M+ contracts surging

📈

Why It Matters

RPO Explosion: $392B remaining performance obligation (+51% YoY) with 2-year weighted average duration proving real demand

Copilot Scale: 150M MAU across family of Copilots with 90%+ Fortune 500 using M365 Copilot

GitHub Dominance: 26M Copilot users, 180M total developers, adding one developer per second to platform

OpenAI Partnership: New definitive agreement with $250B Azure commitment, exclusive IP/API rights through 2030, 10x ROI achieved

Infrastructure Moat: $34.9B CapEx building planet-scale AI factory with 80% capacity increase planned this year

🎯

What's Next

Q2 Revenue Guidance: $79.5-80.6B (14-16% growth) ahead of Street expectations

Azure Outlook: ~37% constant currency growth in Q2 as capacity constraints persist through FY2026

CapEx Acceleration: Sequential increase with FY26 growth rate now expected higher than FY25's pace

Capacity Expansion: Doubling total data center footprint over next 2 years, 80% AI capacity increase in FY26

Agent Systems: Agent HQ launched, M365 Copilot Agent Mode introduced, Foundry at 80K customers growing rapidly

💡

Bottom Line for Retail Investors

Microsoft just delivered the most impressive earnings beat in recent history with 112% commercial bookings growth driven by real enterprise demand. The $392B RPO with only 2-year duration proves customers are consuming AI services immediately, not speculating. Azure accelerated to 40% growth despite being capacity-constrained through FY2026, meaning actual demand is even higher. The new OpenAI agreement delivers $250B in Azure commitments with exclusive IP rights through 2030-2032 while Microsoft has already achieved 10x ROI on the investment. With 150M Copilot MAU, 26M GitHub Copilot users, and 90%+ Fortune 500 penetration, the AI monetization is real and scaling. Management is confidently increasing CapEx to $140B+ annually to build an insurmountable infrastructure moat. For retail investors, this is the AI platform winner with proven enterprise adoption, expanding margins at 49%, and a multi-year growth runway that justifies current 33x forward P/E for an 18% grower.

☁️

Azure AI Infrastructure Dominance

Growth Acceleration: Azure +40% (39% CC) with AI workloads driving acceleration beyond expectations

Revenue Scale: Microsoft Cloud hit $49.1B quarterly (+26% YoY) on path to $200B+ annualized

Capacity Constrained: Demand significantly exceeds supply through at least end of FY2026 proving durability

Infrastructure Build: 80% AI capacity increase in FY26, doubling total data center footprint over 2 years with fungible global fleet

🤖

Copilot AI Monetization Engine

Massive Scale: 150M monthly active users across Copilot family with 50% QoQ adoption growth

GitHub Explosion: 26M Copilot users (up from 15M), 180M total developers, adding 1 developer per second

Enterprise Penetration: 90%+ of Fortune 500 using M365 Copilot with PwC alone at 200K seats deployed

ARPU Expansion: M365 Copilot driving ARPU growth comparable to server-to-cloud transition at premium pricing

💼

Enterprise Software Flywheel

M365 Growth: Commercial cloud +17% (15% CC) with ARPU growth from E5 and Copilot driving expansion

Dynamics Momentum: Dynamics 365 +18% (16% CC) as AI features accelerate ERP/CRM modernization

LinkedIn Platform: +10% revenue growth with 1.3B members, talent solutions impacted by hiring weakness

RPO Strength: $392B remaining performance obligation (+51% YoY) nearly doubled in 2 years with 2-year duration proving consumption

🎮

Gaming & Consumer Expansion

Content Leadership: Record content and services revenue with Minecraft at 155M MAU all-time high

Platform Expansion: Xbox content +1% against tough comp, new titles like Outer Worlds 2 driving engagement

Search Growth: +16% advertising revenue (15% CC) with 18 consecutive quarters of Edge share gains

Consumer AI: Windows 11 AI PCs with Copilot wake word, Vision, and Action capabilities expanding consumer AI adoption

💸

AI Infrastructure Cost Pressure

CapEx Explosion: $34.9B quarterly spend with FY26 growth rate now higher than FY25 creating unprecedented capital requirements

Short-Lived Asset Risk: ~50% spend on GPUs/CPUs with 3-5 year lives creating massive depreciation and replacement cycles

Margin Pressure: Microsoft Cloud gross margin down to 68% from AI investments with Q2 guided to 66%

Overbuilding Risk: Doubling data center footprint in 2 years risks underutilization if AI demand doesn't materialize as expected

🔍

Copilot Adoption Uncertainty

Capacity Constraint Impact: Azure revenue growth limited by supply constraints causing potential customer losses to AWS/Google

Usage vs Revenue Gap: 150M MAU reported but actual paid seat conversion and monetization details remain undisclosed

M365 Chat Concern: Adoption growing 50% QoQ but usage intensity patterns unclear suggesting exploration vs production use

Economic Sensitivity: Premium AI features and Copilot add-ons most vulnerable to enterprise budget cuts during downturn

⚖️

Regulatory & Antitrust Risks

OpenAI Volatility: Partnership converting to public benefit corp creating increased accounting volatility in other income/expense

Customer Concentration: OpenAI represents massive RPO portion with $250B commitment creating single-customer dependency risk

Exclusivity Expiration: IP and API exclusivity through 2030 means OpenAI could shift to competitors after 5 years

AGI Definition Risk: If AGI achieved (however defined), Microsoft loses exclusive rights and revenue share arrangements

📉

Macro & Cyclical Headwinds

Bookings Volatility: 112% growth unsustainable with OpenAI driving outsized comp making future quarters difficult

Talent Solutions Weakness: LinkedIn talent business declining due to weak hiring market showing macro pressure

Gaming Headwinds: Xbox content -2% YoY with hardware declining and services growth tepid at +1%

Windows 10 EOS Pull-Forward: Windows OEM +6% from end-of-support upgrades creating revenue cliff risk in coming quarters