Microsoft delivered a strong fiscal first quarter on Wednesday, October 28, 2026, giving investors fresh evidence that its heavy AI investments are paying off at a moment when concerns about Big Tech’s spending are rising. Revenue grew 19% to $92.28 billion, above the $90.69 billion analysts expected, and adjusted earnings reached $4.89 per share against a forecast of $4.73. Shares rose more than 3% in after-hours trading.

The headline was Azure. The cloud platform grew 48%, ahead of the roughly 45% the company had guided, and for the first time Microsoft disclosed Azure revenue in dollar terms: $33.17 billion for the quarter, even though some third-party capacity deliveries were delayed. Looking ahead, the company expects second-quarter Azure growth of 49% to 50% at constant currency and total revenue of $96 billion to $97.1 billion, both above analyst estimates. Chief Financial Officer Amy Hood said demand still exceeds supply.

Cash flow set Microsoft apart. It generated $18.6 billion in free cash flow, roughly $10 billion more than analysts expected, even as capital spending rose to $45.2 billion from $34.9 billion a year earlier. That was below the company’s own projection of $50 billion, which management attributed to delayed third-party capacity rather than any change in plans. Microsoft has spent $118.1 billion so far in calendar 2026 and would need about $56.9 billion in the final quarter to reach its $175 billion forecast.

The contrast with rivals was stark. Alphabet reported negative free cash flow of about $9 billion as its spending jumped, and its shares fell around 8% in extended trading, while Meta last week posted its first cash burn in more than a decade and said it would issue new stock to fund capital costs. Analyst Jesse Cohen of Investing.com called Microsoft’s report about as clean as it gets for a company of its size and a counterweight to the AI-spending anxiety revived by Meta and Alphabet.

The report also touched the two other names at the center of the AI trade. Microsoft said around 75% of its capital spending is now tied to short-lived assets such as Nvidia’s graphics processors and Intel’s central processors, up from 66% in the prior three quarters, a shift Hood said reflects a focus on infrastructure that can generate returns quickly. Its ties to OpenAI contributed about $10 billion in revenue in the quarter, which Reuters said eased fears that Microsoft’s AI fortunes are too closely linked to the unprofitable AI lab, although adjusted earnings exclude a roughly $200 million loss on its OpenAI investment.

CEO Satya Nadella pointed to a strategy of giving customers more affordable choices as businesses weigh the rising cost of AI. He said Microsoft offers a range of AI options, some cheaper than cutting-edge models such as Anthropic’s, and is working to make Copilot more useful with each model release. The number of people using Microsoft 365 Copilot jumped 50% from the previous quarter, and the new Microsoft 365 E7 bundle has already reached millions of seats, Hood said.

Not everything grew. Under a new reporting structure, Microsoft now reports two segments, Agents and Infra, up 25% to $76.8 billion, and Devices and Consumer, down 3% to $15.48 billion. Device and Windows licensing sales fell 22%, which Nadella blamed on higher PC prices driven by rising memory and storage costs. Forrester analyst Tracey Woo noted that Microsoft benefits if most AI value is captured at the application layer, but that competition could shift if value moves toward chips, infrastructure and foundation models.