Microsoft just posted the first quarter of its 2027 fiscal financial results. The software maker made $92.3 billion in revenue and a net income of $33.6 billion during Q1. Revenue is up 19 percent, and net income has increased by 32 percent.
It’s a new financial year for Microsoft, so the company is changing up how it reports its finances by splitting its businesses into two segments for the first time. Gone are the previous segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. It’s now just Agents and Infra, and Devices and Consumer.
Agents and Infra, which includes businesses like Azure, Microsoft 365 commercial and consumer, and server products, makes up 83 percent ($76.8 billion) of the overall $92.3 billion of Microsoft’s revenue and has increased 25 percent year-over-year. The big changes to Microsoft’s financial reporting also mean we will now see the company disclose Azure revenue on a quarterly basis. Azure contributed $33.17 billion in revenue this quarter, up 48 percent year-over-year.
Devices and Consumer, which includes Windows, Xbox, Surface, and Microsoft’s search and advertising businesses, makes up the remaining 17 percent ($15.5 billion) of Microsoft’s $92.3 billion in revenues this quarter — a decrease of three percent.
Windows OEM and devices revenue is down 22 percent year-over-year, amid a RAMageddon crisis that has seen the overall PC market dropped by 20 percent in the recent quarter. Microsoft blames the revenue drop on the benefit of Windows 10 end of support during the prior year, as well as OEM inventory drawdowns and a weaker PC market.
Microsoft launched Intel- and Qualcomm-powered Surface Pro 12 and Surface Laptop 8 devices just before its new financial year began, and the company even refreshed its smaller Surface Pro and Surface Laptop with Qualcomm’s X2 Plus chips during the quarter. Surface prices are higher than ever thanks to RAMageddon, and the PC market looks like it’s going to go through a very tough time during Microsoft’s 2027 financial year and beyond.
Microsoft CFO Amy Hood said on the company’s earnings call that she expects Windows OEM revenue to decline again next quarter, around “the mid 30s,” and a decline is expected to continue throughout the 2027 financial year.
Microsoft CEO Satya Nadella also remarked on the company’s new hybrid AI push for Windows during the earnings call. “We are executing on our vision to bring hybrid intelligence to every desk in every home, making every PC a secure agent box,” said Nadella. “As more capable models run locally, we see an opportunity to make more intelligence effectively unmetered.”
Microsoft and Nvidia unveiled a range of RTX Spark laptops earlier this month, including the Surface Laptop Ultra. The laptops ship with up to 128GB of unified memory, and are capable of running recent frontier models locally.
Over on the Xbox side, hardware revenue has declined once again year-over-year. Xbox hardware revenue is down 14 percent. Xbox content and services, which includes Game Pass, is down 2 percent, too. Microsoft is still not giving an update on Game Pass subscriber numbers, after the company last reported it had 34 million subscribers more than two years ago. Overall Xbox revenue is down 2 percent.
The first quarter of the 2027 financial year for Xbox has been dominated by a “reset” with thousands of layoffs and studios spun off. The layoffs aren’t over yet, with rumors more could arrive in November and January. In a memo earlier this year, Xbox CEO Asha Sharma said “we will return Xbox to player and revenue growth” by the end of fiscal year 2027 (which runs through next June).
The aim, as Sharma puts it, is to “scale what works” so that by fiscal year 2030 Xbox is “halfway to our long-term daily-player goal with sustained double-digit growth in players and engagement and industry leading margins.” Sharma posted on X that Xbox was “making progress, with a lot more work ahead.” Sharma also revealed that PC platform revenue has grown in double digits this quarter, and that “console sales remain constrained by supply, with more demand than consoles available.”
Hood says Xbox hardware revenue will decline again next quarter, but Xbox content and services revenue is expected to increase in the “mid to high single digits.” Sharma says Microsoft is “working to get more consoles into players’ hands, including through our expanded refurbishment program.”
Microsoft’s cloud revenues were really the star of the earnings show again this quarter, a phrase I seem to always write every few months. Microsoft Cloud revenue contributed $63.9 billion towards Microsoft’s revenues this quarter, almost 70 percent. That’s up 30 percent year-over-year, thanks to strong demand for Azure and Microsoft 365 commercial cloud.
Microsoft 365 commercial cloud revenue itself also grew 18 percent, thanks to higher revenue per user and upselling of premium options like Microsoft 365 Copilot, E5, and E7. Microsoft 365 consumer cloud revenue has also grown by 17 percent, driven by growth in revenue per user and subscriber growth of 7 percent.
Nadella also discussed his vision for Microsoft’s own AI models on the company’s earnings call. “We also continue to make rapid progress with our first-party models,” said Nadella. “Our goal is to advance the cost to outcome frontier, which means delivering capabilities comparable to leading models within three to six months of their release at a fraction of the training cost, thereby allowing us to transfer those cost benefits to customers.”
Update, October 28th: Article updated with comments from Microsoft CFO Amy Hood, Microsoft CEO Satya Nadella, and Xbox CEO Asha Sharma.