Microsoft Corporation released its first-quarter results for fiscal year 2026, showing a strong start to the year. The company reported revenue of $77.7 billion, up 18% year-on-year (17% on a constant-currency basis). Operating income rose to $38 billion, a 24% increase (22% in constant currency).
Net income on a GAAP (Generally Accepted Accounting Principles) basis amounted to $27.7 billion, up 12% year-on-year, while non-GAAP net income (excluding the impact of investments in OpenAI) reached $30.8 billion, increasing 22% (21% constant currency).
Additionally, diluted earnings per share (GAAP) were $3.72 (+13%), and on a non-GAAP basis, they were $4.13 (+23%).
According to the earnings call, the company’s growth was driven primarily by its cloud and AI businesses. Both the Microsoft Cloud and Intelligent Cloud segments grew over 25%, with the latter recording $30.9 billion in revenue.
“We delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share”, said Amy Hood, executive vice president and Chief Financial Officer (CFO) of Microsoft. “Continued strength in the Microsoft Cloud reflects the growing customer demand for our differentiated platform”, she added.
AI Gains Offset Heavy Investment
Microsoft’s cloud and AI operations delivered standout growth in the first quarter of FY26, reflecting the company’s deepening integration of generative AI across its cloud infrastructure and product ecosystem. Chief Executive Officer (CEO) Satya Nadella said, “Microsoft Cloud revenue surpassed $49 billion, up 26% year-over-year,” underscoring strong demand from both enterprises and AI developers.
He noted that the company is “building a planet-scale cloud and AI factory,” adding that total AI capacity will increase by over 80% this year, while its data center footprint is set to double within two years.
Nadella highlighted accelerating customer adoption of Azure AI services, explaining that “demand again exceeded supply across workloads, even as we brought more capacity online.” Microsoft’s partnership with OpenAI remains a cornerstone of its AI expansion, with the two companies expanding their agreement.
CFO Amy Hood reinforced the financial strength behind this push, reporting that Microsoft Cloud’s gross margin “was slightly better than expected at 68%, and down year-over-year due to investments in AI that were partially offset by ongoing efficiency gains.” Azure and other cloud services revenue grew 40% in constant currency, “driven by better-than-expected growth in our core infrastructure business.”
Furthermore, Hood reported that capital expenditures were $34.9 billion, noting that “roughly half of our spend was on short-lived assets, primarily GPUs and CPUs, to support increasing Azure platform demand.” She added that the remaining investment went toward “long-lived assets that will support monetisation…
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