Microsoft cuts 2026 capital spending outlook to $170 billion as Azure growth accelerates
Key Facts
Microsoft lowered its estimate for capital spending in calendar 2026 to about $170 billion, from a previous estimate of about $175 billion, Chief Financial Officer Amy Hood said on the fiscal 2027 first-quarter earnings call. The new estimate applies to calendar 2026, while the company said its spending in fiscal 2027 would rise from the prior year. Microsoft said the previous change to its estimate was related to the reclassification of certain leases. The decision comes as its cloud computing business continues to grow and demand for Azure, the company said, still exceeds available capacity. Hood also confirmed that the company expects to remain in positive free cash flow territory during fiscal 2027.
Microsoft reported revenue of $92.3 billion for the quarter ended September 30, 2026, up 19% year over year, while net income under U.S. generally accepted accounting principles (GAAP) rose 32% to $36.6 billion, according to its earnings statement. Hood said results exceeded expectations for revenue, operating income and earnings per share. Microsoft Cloud revenue was about $63.9 billion, up 30% year over year. Compared with the previous quarter, cloud revenue rose from $59.3 billion in the fourth quarter of fiscal 2026 to $63.9 billion in the first quarter of fiscal 2027. The performance reflects the growing contribution of cloud operations to the company’s results during a period when it is stepping up spending on computing capacity.
Azure revenue growth accelerated to 48% in the first quarter of fiscal 2027, compared with 42% in the fourth quarter of fiscal 2026, according to the company’s official metrics. That acceleration underscores the importance of expanding capacity, as Microsoft said demand for Azure remained higher than supply. In explaining the timing of spending, the company cited delayed deliveries of capacity leased from third parties. It also said spending is affected by investment in central processing units, graphics processing units, memory and storage, broadening the range of factors beyond data centers alone.
Commercial remaining performance obligations rose 73% to $677 billion in the first quarter of fiscal 2027, according to the earnings statement. These obligations represent contracted business that has not yet been recognized as revenue, putting the scale of future orders in the context of cloud growth and Azure’s acceleration. On the financing front, net cash from operations totaled $58 billion in the three months ended September 30, 2026. Additions to property and equipment totaled $39.367 billion in the same period, a line item that reflects part of the spending on assets. In the first fiscal quarter, the company returned $10.2 billion to shareholders through cash dividends and share repurchases.
Shares rose more than 4% in after-hours trading on October 28, 2026, according to Investing.com. The move followed the company’s quarterly results announcement, in which Microsoft said revenue was $92.3 billion and Azure grew 48% during the period. The market reaction came alongside a mix of revenue and profit growth and increased spending on capacity. The outlook for positive free cash flow extends through fiscal 2027, Hood said.