Microsoft (MSFT) Q1 2027 Earnings Call Transcript

Yahoo Finance ·

Chairman and Chief Executive Officer - Satya Nadella Executive Vice President and Chief Financial Officer - Amy Hood Deputy General Counsel and Corporate Secretary - Brian DeFoe Vice President, Investor Relations - Jonathan Neilson Revenue -- $92.3 billion, representing 19% growth driven by strong demand across the Microsoft Cloud platform. Non-GAAP EPS -- $4.89, an 18% increase reflecting platform efficiency gains and revenue growth, adjusted for investments in OpenAI. Microsoft Cloud Revenue -- $63.9 billion, growing 30% year over year with acceleration supported by Azure and M365 Commercial Cloud. Azure Revenue -- 48% growth, ahead of expectations due to performance in Foundry and improved CPU monetization despite third-party capacity delays. Commercial Remaining Performance Obligation -- $677 billion, a 73% increase featuring a weighted average duration of 2.3 years. Capital Expenditures -- $45.2 billion, with 75% of spend allocated to short-lived assets like CPUs and GPUs for AI infrastructure. Foundry Revenue -- more than tripled year over year, aided by efficiency gains in the GPU fleet and higher revenue per token. Copilot Adoption -- daily users grew nearly 50% quarter over quarter, while the number of customers with more than 50,000 seats increased over eightfold. GitHub Advanced Security Revenue -- grew over 50% year over year as customers utilized AI to scan repositories and fix vulnerabilities in real time. M365 Commercial Cloud Revenue -- $27.8 billion, an 18% adjusted increase when normalizing for prior-year revenue recognition benefits. Fabric and Foundry Adoption -- 44,000 paid Fabric customers and 120,000 Foundry customers, representing over 50% and 300% growth respectively. Windows OEM Revenue -- declined 27% due to inventory drawdowns by partners and weaker PC market demand. Xbox Content and Services Revenue -- decreased 2% year over year, reflecting declines in third-party content and Game Pass subscriptions. Cash Flow from Operations -- $58 billion, a 29% increase resulting from strong cloud billings and collections. Second Quarter Revenue Guidance -- $96 billion to $97.1 billion, representing 18% to 19% growth. Azure Q2 Guidance -- 49% to 50% growth in constant currency, supported by continued efficiency gains across the compute fleet. Calendar Year CapEx Outlook -- approximately $170 billion, reflecting an acceleration in the second half of the year. AI Agent Registry -- over 50 million agents registered in Agent 365, representing a 30% increase quarter over quarter. PostgreSQL Adoption -- growth accelerated for the fourth consecutive quarter, with 90% of these customers also utilizing Foundry. Healthcare Automation -- 30 million patient encounters automated this quarter, representing a 70% increase year over year. Maia 200 Performance -- delivers 1.7-fold more tokens per watt across AI experiences in Teams and Copilot compared to previous systems. LinkedIn Engagement -- members reached over 1.4 billion, with time spent viewing content in the feed increasing 15% year over year. Copilot Query Efficiency -- 90% of queries utilized Auto mode to dynamically route tasks across models for optimized speed and quality. GAAP Net Income -- $36.6 billion, representing a 32% increase. Need a quote from a Motley Fool analyst? Email [email protected] Hood stated, "some third-party capacity deliveries we expected in Q1 were delayed," which impacted capital expenditures and the timing of supply availability. Hood noted that results were partially offset by "weaker sales execution in our M365 E3 and stand-alone SKUs" during the quarter. Management warned that Windows OEM revenue was below expectations due to "inventory drawdowns by OEM and channel partners and weaker PC market demand." Microsoft Corporation ( MSFT -0.06% ) reported first quarter results featuring accelerated growth in its cloud business and the introduction of a unified Copilot experience. Management stated that the company is building a new technology stack centered on agentic AI, with Foundry and Fabric emerging as primary drivers for enterprise adoption. The company is scaling its global infrastructure, adding 24 data centers this quarter, while focusing on platform-wide efficiency to manage increasing capital expenditures. Management reported that customer demand for AI services continues to exceed available supply, prompting planned CapEx acceleration to over $50 billion in the second quarter. Nadella described Copilot as the "new OS for work," noting that automated tasks have nearly doubled since July. Management reported that the MAI-Base-2 model demonstrated fourfold to 12-fold greater training compute efficiency compared to tested open weight models. The company introduced 30 new Copilot skills for Dynamics 365, integrating CRM and ERP capabilities directly into daily workflows. The company expanded its Perception security suite with new capabilities to secure and contain agentic insiders through dynamic permissions and risk assessment. Hood stated that the company expects to remain free cash flow positive in fiscal year 2027 while maintaining flexibility to access additional funding if attractive. The GitHub platform saw a sixfold increase in agent-generated pull requests over the past six months, with agents now opening more than one-third of all requests. Copilot : Microsoft's unified AI interface that integrates chat, coding, and office productivity tools. Foundry : A platform within Azure used to build and deploy AI agents and manage learning loops. Fabric : An all-in-one analytics solution that covers data movement, data science, and real-time analytics. Agent 365 : A platform for AI observability that allows organizations to manage, secure, and monitor AI agents. Azure OpenAI : A service providing REST API access to OpenAI's language models. WorkIQ : A service that provides agentic workloads with context from Microsoft 365 data. Maia : Microsoft's custom-designed AI accelerator chips optimized for cloud-based training and inferencing. MXC (Microsoft Execution Containers) : A policy-driven layer used to govern and contain AI agents. TAC (Traffic Acquisition Costs) : Payments made by search engines to affiliates for directing traffic to their websites. Constant Currency : A reporting method that eliminates the effects of foreign exchange rate fluctuations for comparison purposes. Operator: Greetings, and welcome to the Microsoft Fiscal Year 2027 First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jonathan Neilson, Vice President, Investor Relations. Jonathan Neilson: Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer; Alice Jolla, Chief Accounting Officer; and Brian DeFoe, Deputy General Counsel and Corporate Secretary. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. More detailed outlook slides will be available on the Microsoft Investor Relations website when we provide outlook commentary on today's call. On this call, we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's first quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. We will also provide growth rates in constant currency when available as a framework for assessing how our underlying business performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we will refer to the growth rate only. We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call and in the Risk Factors section of our Form 10-K, Forms 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. And with that, I'll turn the call over to Satya. Satya Nadella: Thank you very much, Jonathan. It was a fast start to our fiscal year. Microsoft Cloud revenue surpassed $63 billion with growth accelerating to 30% year-over-year. We are focused on 3 things: designing AI to empower people, ensuring every organization has sovereignty over its own learning and building trust with controls that ensure agent safety and security. Now let's talk about how we are making progress on those goals as we build a new tech stack, starting with Copilot. We announced our biggest update to Copilot to date this quarter, bringing together Chat, Cowork, Autopilot and Code into one unified experience. It's one product experience across commercial and consumer and comes with all of Office built in. We think of Copilot as the new OS for work. Customers are increasingly turning to Copilot to get real work done. Automated tasks have nearly doubled since July. Daily users are up nearly 50% quarter-over-quarter and over 5x year-over-year. User satisfaction improved nearly 20% quarter-over-quarter to another all-time high. And 90% of Copilot queries use Auto mode, which dynamically routes tasks across models optimizing for quality, speed and cost. These improvements are translating into larger purchases. The number of customers with more than 50,000 Copilot seats increased over 8x year-over-year, including Capgemini, HCLTech, Hitachi Group, Truist Financial and U.K. Revenue and Customs Department. And just last week, Volkswagen announced plans to deploy Copilot to more than 330,000 employees, one of the largest deployments to date in Europe. We're also seeing strong momentum with E7, which brings together Copilot, E5, Entra and Agent 365. Thousands of customers in every industry have purchased the suite to date, including Amadeus, BlackRock, Fiserv and New South Wales Health Department and ZEISS. Our business model is expanding from per seat subscriptions to include consumption, expanding our TAM and ARPU. The subscription brings increasingly capable everyday intelligence to every user. Typically, IT funds this, consolidating frontier advances for everyone across the organization. And as agents take on higher-value work, consumption opens up business funded demand with spending tied directly to the value these agents deliver. The number of Copilot customers actively consuming credits through usage-based billing grew over 75% over the quarter. When it comes to software development, all major coding agents have shown up to work on GitHub. Agent-generated PRs have increased 6x over the past 6 months, and agents now open more than 1/3 of all PRs on the platform. We are very hard at work on reliability as agentic activity on GitHub soars. At GitHub Universe this morning, we shared how we are expanding capacity and rebuilding the core Git architecture for the Agentic wave. Also at Universe, we announced broad availability of Copilot Fusion, which is all about bringing multi-model orchestration to software development. It delivers frontier-level quality up to 40% faster and at up to 77% lower cost. Credit consumption from Agentic features on GitHub has more than doubled since usage-based billing went into effect. And we're also helping developers secure their code and turn AI-generated code into high-quality software. GitHub Advanced Security revenue increased over 50% year-over-year as customers use its AI capabilities to scan entire repos and fix vulnerabilities in real time. In the business application space, we are extending this vision of Copilot as the new OS for work, bringing the business logic and capabilities of Dynamics 365 directly into Copilot and helping every organization stand up their own infinite SaaS factory. This quarter, we introduced 30 new Copilot skills across Dynamics 365, which enables customers to access CRM and ERP capabilities directly in the flow of work. In recruiting, more than 10 million LinkedIn members use our LinkedIn AI-powered job search daily and 25,000 customers are using our agentic hiring solutions. Recruiters using Hiring Assistant are finding interview quality applicants 33% faster while reviewing 83% fewer profiles to find qualified match. In healthcare, we automated 30 million patient encounters this quarter, up 70% year-over-year, helping clinicians spend less time on administrative work and more time with patients. 10 providers, including Advocate Health, Mass General Brigham, Mercy, Intermountain Health and others have used our solutions to document over 1 million encounters each since the beginning of the calendar year. And in Science, our FDE teams are working with customers to use discovery to accelerate scientific progress. A great example is Saint-Gobain, which used Discovery to accelerate the development of low-carbon construction materials. Underneath our first-party agentic experience is a common platform. It starts with Foundry, which is becoming an increasingly important driver of our growth. Foundry helps organizations build learning loops grounded in their business context and deploy agents safely at scale. We now have over 120,000 Foundry customers with revenue more than tripling year-over-year. Foundry's model choice and feature set, coupled with its deep integration across our stack is driving differentiation. Azure OpenAI directly benefited in the last quarter with big advances in OpenAI models. And when you couple this with our model choice built into Foundry, customers are able to build solutions optimizing across quality, cost and performance. In fact, the number of customers building agentic solutions with multiple models increased 5x year-over-year and revenue from open source models on Foundry increased 10x. We also continue to make rapid progress with our first-party models. Our goal is to advance the cost-to-outcome frontier, which means delivering capabilities comparable to leading models within 3 to 6 months of their release at a fraction of the training cost, thereby allowing us to transfer those cost benefits to customers. And you see this in our products today. MAI-Cyber now powers over 40% of the scans in our Agentic MDASH code scanner at 18% lower cost per scan. MAI-Transcribe is the most accurate and cheapest transcription model in the world, supporting Dragon Copilots multilingual workflow. MAI Code Flash has 3 million users in GitHub Copilot last month alone, helping developers get more out of their AI credits. Microsoft-Decision-1 is our new model for structured decision-making, outperforming both LLMs and other decision models in latency and quality. Over 4,000 customers, including Atos Group, Equinor and RBI have already used it in the first month since its release. And we recently completed pretraining MAI-Base-2, which outperforms other open weight models we tested with 4 to 12x greater training compute efficiency. This base model will be used in the upcoming MAI models across thinking, code and cyber. Beyond models, we are making the harness behind our own Copilot experience available to customers in Foundry. It gives customers a Microsoft managed way to build agents that reason, use tools, complete complex, long-running work while preserving their choice of model. Another critical layer is data. We now have 44,000 paid Fabric customers, up more than 50% year-over-year. We are bringing Foundry and Fabric closer together so you can build your own agents right next to data. Over 19,000 customers now use Foundry and Fabric as enterprises connect and operate agents over real-time operational, analytical and unstructured data. Customers are also rapidly deploying our AI optimized databases, including PostgreSQL, SQL DB Hyperscale, Cosmos DB to give agents fast, secure access to the data and context they need. PostgreSQL growth accelerated for the fourth consecutive quarter, and the number of PostgreSQL customers also using Foundry accelerated to 90% year-over-year. We also have one of the most important databases for any enterprise, which is the knowledge underneath Microsoft 365 spanning people, their relationships, documents, e-mails, meetings, chats, projects and other artifacts. WorkIQ makes this context available to every Agentic workload. And with Microsoft IQ, we are bringing together WorkIQ, Fabric IQ and Foundry IQ as a unified context for Agentic systems. Nearly 60,000 customers are accessing context across Microsoft IQ, up 25% quarter-over-quarter. As enterprises deploy more agents, they also need to govern them at scale. With Agent 365, we provide a platform for AI observability, enabling customers to manage, secure and optimize the performance and cost of their agents. Over 50 million agents are now in the registry, up over 30% quarter-over-quarter. And finally, as agents gain greater access to enterprise data and systems, security becomes even more critical. Our approach is to separate intelligence from authority, enforcing identity, permissions, monitoring and containment outside the model itself. Last week, we expanded Perception with new capabilities to help customers secure and contain agentic insiders, including expanded agent discovery across local and cloud environments, dynamic permissions that enforce least privileged access for each task and continuous risk assessment. We also introduced Teams of Guardian agents that continuously monitor agent activity to help prevent unsafe actions before they occur. And we are seeing encouraging feedback on Perception overall from preview customers, including KPMG, Nationwide Building Society, Northern Trust, Stellantis. More broadly, we are helping customers secure and govern AI use across the enterprise. Customers have used Microsoft Purview to audit over 7.6 billion agent activities to date, up 5x quarter-over-quarter. Underlying everything I've talked about so far is our infrastructure. We are building against a growing book of business with a fungible fleet that allows us to dynamically allocate capacity to the highest value opportunities across compute, data, Foundry and Copilot. Accelerating demand led to us adding 24 new data centers across 5 continents this quarter.

DYAX Investor Sentiment

Bullish (Long) 57% · Bearish (Short) 43%

246 participants

Related News

원문 보기 — Yahoo Finance