Microsoft's stock retreated on Thursday, giving back earlier gains, as investors balanced robust fiscal first-quarter results against the company's intention to raise at least $25 billion through a U.S. bond offering and its elevated spending trajectory.
The tech giant reported revenue of $92.28 billion for the quarter ended September 30, a 19% increase year over year. Adjusted earnings per share came in at $4.89, surpassing the $4.71 consensus estimate. Despite the beat, shares moved lower in regular trading, reversing premarket strength.
Azure growth accelerates
Azure, Microsoft's cloud computing arm, continued to be the primary growth engine, with revenue climbing 48%—well above the 44.3% analysts had projected. The business provides computing power, storage, and other cloud resources that underpin customer demand for artificial intelligence services.
Chief Financial Officer Amy Hood signaled that Azure growth could accelerate further to 49% in the fiscal second quarter, exceeding the 44.6% forecast. Bank of America Securities analyst Tal Liani raised his price target on Microsoft to $630 from $600, maintaining a Buy rating, citing the company's positioning across infrastructure, models, and software as providing multiple avenues to monetize AI demand.
Capital expenditure below expectations
Microsoft's capital expenditure totaled $45.2 billion in the quarter, falling short of the $51 billion analysts expected, though still up from $34.9 billion a year earlier. The company attributed the shortfall to delays in third-party capacity deliveries rather than a pullback in AI investment plans.
Hood indicated that capital expenditure should exceed $50 billion in the second quarter and accelerate in the second half of the fiscal year, driven by CPU and GPU costs as well as higher memory and storage expenses. William Blair analyst Jason Ader noted that capex is expected to exceed $50 billion in Q2 and accelerate in the second half of fiscal 2027 as delayed capacity comes online and component inflation persists.
The spending outlook is closely watched by AI infrastructure providers, as lower-than-expected near-term spending initially raised concerns about demand for their services, although Microsoft's comments pointed to timing issues rather than reduced commitment.
Bond offering and cash flow
Bloomberg News reported that Microsoft plans to raise at least $25 billion through a U.S. bond offering, drawing attention as investors assessed how the company would finance its continued AI infrastructure buildout. Heavy investment weighed on free cash flow, which fell to $18.6 billion from $25.7 billion a year earlier, though the figure exceeded Wall Street's expectation of $7.99 billion.
Microsoft is also taking steps to control costs. Earlier in the week, the company said it was offering voluntary exit packages to 60,000 employees, though it expects only a fraction of eligible workers to accept. Outside its cloud and AI operations, Microsoft's devices and consumer segment recorded a 3% decline, driven by weakness in Xbox, Windows, and devices.
This article is for informational purposes only and does not constitute financial advice.
