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- **Record Cloud Growth**: $49.1B Cloud revenue (+26% YoY), Azure +40% YoY in constant currency, driven by OpenAI commitments and enterprise Copilot adoption.
- **Copilot Explosion**: 150M monthly active users across products, 155K PwC seats added Q1, saving 46min/day per employee.
- **AI Infrastructure Buildout**: $34.9B CapEx, doubling data centers in 2 years, 80% AI capacity expansion FY26.
- **OpenAI Deal Impact**: $250B Azure commitments, extending IP rights through 2032, with AGI rev share until 2030.
- **Profitability Resilience**: 23% EPS growth, 49% operating margin, $25.7B free cash flow despite $4.1B OpenAI losses.

**【CEO Summary Section】**
- Microsoft reported $77.7 billion in Q1 FY26 revenue, up 18% YoY, driven by 26% growth in Microsoft Cloud revenue to $49.1 billion.
- Azure AI services demand exceeded supply, with Azure revenue growing 40% YoY in constant currency.
- Copilot adoption accelerated, with 150 million monthly active users across products like Microsoft 365, GitHub, and Bing.
- New $250 billion Azure commitments from OpenAI, extending IP rights through 2032 and rev share until AGI or 2030.
- Microsoft is doubling its data center footprint over 2 years, adding 80% AI capacity in FY26, including the 2GW Fairwater facility in Wisconsin.
- M365 Commercial Cloud ARPU growth driven by E5 and Copilot, with 155,000 PwC seats added Q1.
- Gaming revenue grew with Minecraft and Outer Worlds 2, reaching 155 million monthly active users.

**【CFO Financial Commentary】**
- GAAP EPS of $4.13 (23% YoY growth), Non-GAAP EPS of $1.08 exceeded expectations.
- Gross margin 69% (down 100bps YoY due to AI investments), operating margin 49% (up 200bps YoY).
- Operating expenses +5% YoY (AI engineering, compute capacity, talent).
- CapEx $34.9 billion (50% short-lived assets for AI, 50% long-lived for 15+ year monetization).
- Free cash flow $25.7 billion (+33%), with $10.7 billion returned to shareholders.
- Q2 guidance: $79.5-80.6 billion revenue (+14-16%), Azure +37% YoY in constant currency.
- Microsoft Cloud gross margin expected ~66% (down 100bps YoY).

**【Q&A Highlights】**
- **OpenAI Concentration Risk**: 51% RPO growth driven by $250B Azure commitments, but 2-year weighted average duration ensures short-term utilization. OpenAI losses in other income ($4.1B Q1) reflect equity method accounting.
- **Azure Capacity Constraints**: Azure revenue growth constrained by prioritization of first-party apps (Copilot, security, GitHub) and R&D. Azure AI services demand > supply despite new capacity.
- **AI Investment Efficiency**: 30% token throughput improvement for GPT-4.1/5, fungible fleet modernized annually, optimizing across silicon, systems, and software.
- **Competitive Positioning**: Focused on high-margin first-party apps (Copilot, security, coding) vs. hyperscaler peers. Azure's 2-year RPO balance vs. peers' 4-5 years highlights Microsoft's demand stickiness.
- **Consumer AI Growth**: Copilot daily users +50% QoQ, Microsoft 365 Premium subscriptions up 26% YoY with AI usage limits.

Microsoft Corporation (MSFT) Q1 2026 Earnings Call Transcript

Revenue

Sales and Services Revenue

Financing Services Revenue

Other Revenue

Cost of Revenue

Cost of Goods and Services

Cost of Financing Services

Other Cost

Gross Profit

Other Operating Income

Operating Expenses

Selling, General and Administrative Expenses

Selling and Marketing Expenses

General and Administrative Expenses

Research and Development Expenses

Loss on Bad Debts

Loss on Impairment of Other Assets

Loss on Disposal of Assets

Other Operating Expenses

Operating Income

Non-Operating Income (Loss)

Income (Loss) from Affiliates

Income (Loss) from Associates

Income (Loss) from Joint ventures

Gain (Loss) on Other Investment

Gain (Loss) on Change in Fair Value

Gain (Loss) on Foreign Currency Exchange

Other Non-Operating Income (Loss)

Net Interest Expense

Interest Expense

Interest Income

Pretax Income From Continuing Operations

Income Tax Expense

Current Income Tax

Deferred Income Tax

Income Tax Adjustments

Net Income from Continuing Operations

Income from Discontinued Operations

Other Items Before Net Income

Net Income

Net Income Attributable to Minority Interests

Net Income Attributable to Owners of the Company

Preferred Stock Dividends

Other Adjustments

Net Income Attributable to Common Stockholders

Other Comprehensive Income

Total Comprehensive Income

Total Comprehensive Income Attributable to Minority Interests

Total Comprehensive Income Attributable to Owners of the Company

Basic EPS

Basic EPS from Continuing Operations

Basic EPS from Discontinued Operations

Diluted EPS

Diluted EPS from Continuing Operations

Diluted EPS from Discontinued Operations

MSFT

MSFT fundamentals

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