45% Azure Growth Guided, Over $50bn of Capex (Microsoft Earnings Preview, 28 October 2026): What to Expect From Q1 — and Why a Lease Reclassification Changes the Capex Read

Microsoft reports fiscal first-quarter 2027 results after the US close on Wednesday 28 October, with the webcast at 5:30 p.m. Eastern (21:30 UTC). The company has guided revenue of $89.85bn to $90.95bn, Azure growth of about 45% in constant currency and capital expenditure of more than $50bn; published consensus has adjusted EPS at $4.71. The beat-or-miss on earnings matters less than two things: whether Azure delivers the acceleration management promised, and how to read a capex number that an accounting change has made harder to compare with last year's.

When the report lands, and why this Wednesday is crowded

Microsoft's investor relations page lists the fiscal-year 2027 first-quarter conference call for Wednesday 28 October 2026, with Satya Nadella and Amy Hood. The quarter covers July to September. The release posts after the 4 p.m. close and the call follows at 5:30 p.m. Eastern. US clocks do not change until 1 November, so that is 21:30 UTC and 05:30 Thursday in Hong Kong.

The scheduling makes this one of the most concentrated sessions of the year for US equity indices. The Federal Reserve announces its rate decision at 2 p.m. Eastern the same day, covered in our October FOMC preview. Alphabet also reports after the close that day, and Microsoft's call follows. Anyone watching NAS100 or US500 futures that evening will see three separate inputs land within about four hours, and it will often be hard to say which one moved the price.

What the guidance and the consensus imply

Guidance from Microsoft's fiscal Q4 2026 earnings call; year-ago actuals from Microsoft's fiscal Q1 2026 release. Consensus EPS from published analyst tallies.

The guidance is detailed enough to check the consensus yourself. Take the midpoint of every line: revenue of $90.4bn, less cost of revenue of $29.7bn and operating expense of $16.85bn, leaves operating income of about $43.85bn. That compares with $38.0bn a year ago, growth of roughly 15%, and an operating margin of about 48.5% against 48.9% — matching Hood's "relatively flat" guide. Subtract the roughly $100m of net other expense she guided, apply the 20% tax rate, and divide by the share count implied by last quarter's results, and you arrive at about $4.71. In other words, consensus is simply Microsoft's own guidance midpoint. Microsoft has beaten the consensus EPS estimate in each of the past four quarters, so some beat is likely priced already. A result exactly at $4.71 would be on-guide, not a surprise.

Two items sit underneath the headline. The More Personal Computing segment is guided to shrink, with Windows OEM and devices revenue expected to decline in the low twenties as higher component prices raise PC prices. And cost of revenue is growing at 23% to 24%, much faster than revenue, because the AI infrastructure behind Azure is expensive to run. The operating margin holds only because operating expense grows at 7% to 8%.

Azure: the one growth rate the market trades

Azure is the part of Microsoft that tells investors whether the company's AI spending is turning into sales. Its growth went from 39% in constant currency a year ago to 40% in the March quarter and 43% in June, which beat the roughly 40% that analysts surveyed by CNBC and StreetAccount had expected. Hood then guided about 45% for this quarter, above the 41.4% consensus at the time. Azure revenue passed $100bn for fiscal 2026 for the first time.

The important qualifier is supply. Hood said Microsoft remains "focused on delivering efficiencies that help us bridge the gaps we see as customer demand continues to exceed supply," and reminded analysts that the growth rate "can vary quarter-to-quarter based on capacity timing and contract mix." That means Azure's quarterly number reflects two things at once: how much customers want to buy and how many servers Microsoft managed to bring online in time. A miss caused by capacity arriving late and a miss caused by weak demand look the same in the headline figure. Only the commentary separates them.

There is also a concentration question. CNBC reported that Microsoft said in January that about 45% of its then $625bn commercial remaining performance obligation, contracted revenue not yet recognised, was tied to OpenAI. By June the RPO had grown to $678bn, and Microsoft said the sequential growth came from customers other than AI model developers. Watch the RPO total and how much of it Microsoft attributes to customers other than OpenAI.

The capex number, and why it is no longer like-for-like

Microsoft spent $41bn on capital expenditure including finance leases in the June quarter, up 69% on the year. Roughly two-thirds went on short-lived assets, mainly CPUs and GPUs. Cash paid for property and equipment was $35.8bn and free cash flow fell 23% to $19.6bn. The Q1 guide is "over $50bn".

The complication is an accounting change made at the start of fiscal 2027. Microsoft extended the estimated useful life of its datacentres and office buildings from 15 to 25 years. Hood said the change has "a minimal benefit to FY27 operating income". The bigger effect is on capex. With longer building lives, more future datacentre leases will be classified as operating leases rather than finance leases. Finance leases are included in Microsoft's capex figure. Operating leases are not.

Hood said Microsoft's calendar 2026 capex plans were otherwise unchanged, but with the shift in classification the expectation became approximately $175bn. This matters for anyone comparing Microsoft's spending with Alphabet's, Amazon's or Meta's, or tracking it quarter to quarter. A capex figure that comes in lower than the old trend can reflect a lease classification, not a cut to the building programme. The commitments do not disappear. They move into lease disclosures, which is where we found $329.1bn of leases signed but not yet started in Microsoft's annual report. To compare the build-out honestly, look at capex and new lease commitments together.

The three readings, and what each one touches

The middle row is the one the market showed most recently. On 22 October the Nasdaq Composite fell 2.6% after earnings beats from Meta and Tesla, with chip stocks down hardest, as investors focused on the spending rather than the results. We covered that session in why the Nasdaq fell 2.6% on two beats. Microsoft is in a different position from Meta: its AI spending is sold to customers through Azure, so the revenue it generates shows up directly. That is why the Azure growth rate and the capex figure need to be read together, and why one without the other tells you little.

What it touches beyond the stock

NAS100 and US500. Microsoft is one of the largest weights in both indices, so its after-hours move goes straight into futures. With Alphabet reporting the same evening and the Fed decision that afternoon, the evening move will mix three inputs. A useful check is whether the move happens when the release posts or during the call. Guidance on capex and Azure capacity usually comes in the call.

The AI supply chain. Microsoft's capex is revenue for GPU makers, memory producers, server builders and electricity suppliers. A change in its spending plan reprices that group, sometimes more sharply than Microsoft itself.

The dollar and rates. The results do not move the US dollar in any dependable way. For Q1 Microsoft guided that exchange rates would trim total revenue growth by less than one percentage point. What matters for how the market values a long-duration growth company is the real-rate path, and that is decided at 2 p.m. the same day. Rates are one of the five factors the meter scores across the eight majors. For how the site approaches company stories like this one, see about pip theory.

Educational macro context only — not investment advice.