OpenAI brought Microsoft $10B in one quarter as Azure grew 48% to $33.2B

Microsoft has reported the first quarter of its 2027 fiscal year, and for once the most interesting numbers are not the usual headline figures. For the first time, the company put a dollar value on its Azure cloud business: $33.17 billion in the three months to September 30, 2026, up 48% from a year earlier. And a regulatory filing released the same day shows that about $10 billion, nearly 11% of the company's total revenue, came from its commercial arrangements with OpenAI.

Both numbers say something about the state of the AI business at the end of 2026. Cloud demand for AI is still growing faster than Microsoft can build data centers, and the single most important customer behind that growth is a company that Microsoft also competes with. Below is what the report says, what the earnings call added, and how Microsoft compares to Alphabet, which reported on the same afternoon.

The official numbers are in Microsoft's press release. The OpenAI figure comes from the quarterly filing and was first reported by TechCrunch.

The quarter at a glance

Microsoft's fiscal year starts in July, so the quarter that ended on September 30, 2026 is the first quarter of fiscal 2027. Here are the main figures, all compared with the same quarter a year earlier:

• Revenue: $92.3 billion, up 19%. Analysts surveyed by LSEG expected about $90.7 billion, according to CNBC.
• Operating income: $45.9 billion, up 21%.
• Net income: $36.6 billion, up 32% under standard accounting rules. Excluding the effect of its OpenAI investment, net income was $36.4 billion, up 18%.
• Earnings per share: $4.89 adjusted, ahead of the $4.73 analysts expected.
• Microsoft Cloud: $63.9 billion, up 30%, with growth speeding up.
• Commercial remaining performance obligation: $677 billion, up 73%. This is contracted revenue that customers have committed to but that Microsoft has not yet recognized.

Microsoft shares rose about 4% in after hours trading. Before the report, the stock was up about 10% for the year, behind the S&P 500.

This was also the first quarter under Microsoft's new reporting structure. For eleven years, the company split its business into three segments built around Azure, Office and Windows. Now there are only two. Agents and Infra covers Azure, Microsoft 365, Dynamics, LinkedIn's business tools and server licensing. It brought in $76.8 billion, up 25%. Devices and Consumer covers Windows, Xbox, devices and search advertising. It fell 3% to $15.5 billion. The names alone tell you where Microsoft sees its future.

Azure gets a price tag: $33.17 billion

For years Microsoft only told investors how fast Azure was growing, never how big it was. That made it hard to compare with Amazon Web Services or Google Cloud. Last month the company said it would start disclosing the dollar figure, and this is the first result.

Azure revenue was $33.17 billion, up 48%. That is faster than the 42% growth rate of the June quarter and above the roughly $32.3 billion to $32.8 billion that analysts had estimated, according to CNBC and Reuters. GeekWire notes that Azure added $10.8 billion in revenue compared with a year ago, which means Azure is now Microsoft's biggest single business.

Chief financial officer Amy Hood said the growth came from Foundry, Microsoft's service for building AI apps and agents, and from engineering work that let Microsoft sell unused capacity on servers it already runs. That helped make up for new capacity that arrived late. Her short summary of the situation on the call: "We still have demand that exceeds supply."

For the current quarter, Hood expects Azure to grow 49% to 50% in constant currency. Analysts had expected about 45%. In other words, Microsoft says growth will speed up again, even at this size.

Not everything grew. Revenue from Windows licenses sold to PC makers and from Microsoft's own devices fell 22%. Microsoft blamed weak PC demand, the end of Windows 10 support last year, which pulled purchases forward, and higher memory and storage prices that make PCs more expensive. Hood expects that business to fall in the mid 30s percent range in the current quarter. Xbox content and services slipped 2%. The contrast is stark: the part of Microsoft that sells AI and cloud is growing at 25% and more, while the consumer hardware and Windows side is shrinking.

OpenAI is now a $10 billion a quarter customer

The most striking number did not appear in the press release. In its quarterly filing, Microsoft disclosed that it recorded about $10 billion in revenue from its commercial arrangements with OpenAI in the quarter, including revenue sharing payments. That is nearly 11% of total revenue.

To put that in context, TechCrunch reports that OpenAI related revenue was $24.1 billion for the whole of fiscal 2026. A single quarter now delivers more than 40% of that. If the pace held for four quarters, it would add up to about $40 billion a year. GeekWire put it this way in a headline: the OpenAI business is now bigger than Bing or Xbox.

The filing also shows $7.2 billion in outstanding receivables from OpenAI at the end of September, up from $6 billion at the end of June. That is money OpenAI owes for past transactions, not extra revenue. Microsoft's stake in OpenAI slipped from about 25% in June to about 24% in September, without an explanation for the dilution.

What the filing does not say is how the $10 billion splits between Azure computing that OpenAI buys and the revenue share OpenAI pays on its own sales. OpenAI reportedly shares 20% of its revenue with Microsoft, although neither company has confirmed that figure. Under an agreement from April 2026, the revenue share continues through 2030, subject to a cap, even though OpenAI is now free to use other cloud providers. OpenAI also committed in October 2025 to buy an additional $250 billion of Azure services.

That makes the relationship unusual. OpenAI is Microsoft's largest AI customer and a major source of profit, but it also sells ChatGPT Enterprise and its API directly to the same companies that Microsoft wants to win for Copilot and Foundry. In October 2026, OpenAI also announced that its models are coming to Google Cloud, after they arrived on Amazon Bedrock in April. For investors, the $10 billion is both a strength and a concentration risk: a large share of Azure's AI growth depends on how fast one partner keeps growing.

Capex came in below plan, and that is not good news

Microsoft spent $45.2 billion on capital expenditures, including finance leases, in the quarter. That is up about 30% from $34.9 billion a year earlier, but below the more than $50 billion Microsoft had guided for and below the $50.67 billion analysts expected.

On paper, spending less than planned sounds like discipline. In this case it is not. Microsoft says the shortfall came from delays, not from a change of plans. "Some third party capacity deliveries we expected in Q1 were delayed," Hood said. According to CNBC, the delays involve GPU as a service providers, the so called neoclouds that rent out large clusters of Nvidia chips. In plain terms: Microsoft wanted to spend more, but the data center capacity it had ordered was not ready.

The spending has not gone away, it has only moved. For the current quarter, Microsoft plans to spend more than $50 billion. For calendar 2026, it now expects about $170 billion, slightly down from the roughly $175 billion it had projected in July. Reuters calculated that Microsoft had spent $118.1 billion by the end of September. Hood said spending will accelerate in the first half of calendar 2027, mainly on CPUs and GPUs, including higher memory and storage costs, and on the delayed outside capacity.

Two more details stand out. About 75% of capex now goes into short lived assets such as chips, up from around half a year ago. That means Microsoft is buying hardware that can turn into revenue quickly, but that also wears out and needs replacing quickly. And Microsoft's free cash flow fell 27% to $18.63 billion. It is still positive, and Hood said it will stay positive for the full fiscal year, but she also said Microsoft may tap additional financing "when we believe it is attractive to do so."

Microsoft vs Alphabet: same afternoon, different story

Alphabet reported its own third quarter results on the same day, and the comparison is instructive. Google Cloud, which also includes Workspace, brought in $30.7 billion, up 103% from a year earlier. That is close to Azure in size and growing about twice as fast, although the two figures are not defined the same way, so they are not a perfect match.

The bigger difference is cash. According to CNBC, Alphabet's free cash flow was negative by more than $9 billion in the quarter as AI infrastructure spending surged, and its shares fell more than 10% after hours. Meta reported last week that its cash flow turned negative for the first time. Microsoft is now the only one of the three that still pays for its AI build out from current cash flow, at least for now.

That helps explain why investors rewarded Microsoft and punished Alphabet on the same evening, even though Google's cloud is growing faster. Right now, the market cares as much about how AI is paid for as about how fast it grows.

Copilot, buyouts and the cost side

A few other points from the report and the call:

• Copilot usage: CEO Satya Nadella said the number of people using Microsoft 365 Copilot is up 50% from the previous quarter. Microsoft again did not disclose the number of paid seats. Hood said the new high end Microsoft 365 E7 bundle has "millions" of seats.
• Jobs: During the quarter Microsoft cut 4,800 jobs, and this week it offered voluntary buyouts to up to about 60,000 employees. The cost guidance for the current quarter includes an estimate for that offer, but Hood did not give a figure.
• Guidance: Microsoft expects revenue of $96 billion to $97.1 billion for the December quarter, growth of 18% to 19%, and slightly lower operating margins than a year ago.

Put together, the picture is consistent: Microsoft is moving people and money out of older businesses and into AI infrastructure, and it is trying to keep that build out funded from its own cash.

What this means

Three takeaways from this report:

1. AI cloud demand is still bigger than supply. Azure grew 48% and is expected to grow up to 50% this quarter. The limit is not customers, it is data centers, chips and power. 2. OpenAI matters more to Microsoft than ever. About $10 billion in a single quarter makes OpenAI one of Microsoft's largest revenue sources. That ties the two companies together even as they compete harder for the same enterprise customers. 3. The money question is becoming the main question. Microsoft still has positive free cash flow, Alphabet and Meta no longer do. As capex keeps climbing toward $170 billion a year for Microsoft alone, investors will look closely at who can keep paying for AI without borrowing.

Amazon reports its own results, including AWS, on Thursday. That will complete the picture of how the three largest cloud providers came through the quarter.

Sources: [Microsoft press release](https://news.microsoft.com/source/2026/10/28/microsoft-announces-first-quarter-results-2/), [TechCrunch](https://techcrunch.com/2026/10/28/microsoft-recorded-10-billion-in-revenue-from-openai/), [CNBC](https://www.cnbc.com/2026/10/28/microsoft-msft-q1-earnings-report-2027.html), [GeekWire](https://www.geekwire.com/2026/microsoft-azure-revenue-surges-48-to-33-2b-beating-expectations-as-cloud-and-ai-demand-grows/), [Reuters via StreetInsider](https://www.streetinsider.com/Reuters/Microsofts+cloud+growth%2C+cash+flow+offer+respite+from+AI+spending+fears/27249225.html), [earnings call transcript](https://www.fool.com/earnings/call-transcripts/2026/10/29/microsoft-msft-q1-2027-earnings-call-transcript/).