Satya Nadella now refers to Microsoft “building a planet-scale cloud and AI factory” which, with the recent agreement with Open AI, including $250 billion of Azure services (these don’t impact the Q1 results), and Copilot, shows they’re not changing direction any time soon.
Is Microsoft Copilot successful?
Lots of talk in the earnings call about Copilot growth and success with 90% of the Fortune 500 using M365 Copilot and various organisations purchasing 15,000+ seats in Q1 and PWC purchasing 155,000 seats. One should always be carefully sceptical of numbers like this from software publishers – what exactly is “using” and how many people within an org are “using” the software for example?
Copilot functionality is being added into almost every facet of Microsoft’s product portfolio, making it ubiquitous whether users really want it or not!
What are Microsoft’s Financial Results for Q1 FY26?
Revenue = $77.7 billion, an 18% increase
Net Income = $27.7 billion, a 12% increase
Microsoft Cloud = $49.1 billion, a 26% increase
What are Microsoft spending?
- Capital Expenditure (CAPEX) was up 74% in Q1 FY26 “to support customer demand for…cloud and AI offerings.” Approximately half of that spend was on “short-lived assets” such as GPUs and CPUs for Azure and AI growth.
- Long-lived assets spend was up 71%, driven by lease commencements for “large datacenter sites”.
You can see here the huge amount of money that Microsoft are spending on building datacentres, primarily to handle AI growth.
Productivity & Business Processes
- Revenue = $33 billion, a 17% increase
- Microsoft 365 Commercial Revenue = 17% increase
- Dynamics 365 revenue = 18% increase
Operating Expenses increased 6% driven by investments in “compute capacity and AI talent”.
The M365 growth was driven by E5 and Copilot.
Intelligent Cloud
- Revenue = $30.9 billion, a 28% increase
- Azure = 40% increase
Operating Expenses increased 4% driven by investments in “compute capacity and AI talent”.
Earnings Call highlights
- Microsoft plan to increase their total AI capacity by 80% through FY26 and double their datacentre footprint by 2028. They plan to launch the “world’s most powerful AI datacentre” in 2026 which will hit 2 gigawatts itself.
- Fabric revenue increased 60% and now has 28,000 paying customers.
- Cosmos DB revenue increased 50%.
- Microsoft Sentinel has 40,000 customers.
Cloudy with a chance of Licensing 