Microsoft Stock Surges 4% After Crushing Q1 2027 Earnings Expectations

Microsoft stock (MSFT:Nasdaq) is up 2.7% in the after hours to trade at $546.21, after the company beat analyst estimates in its Q3 2026 earnings report.

Microsoft earnings report: summary

As published in the report, Microsoft hit $92.3 billion in revenue, representing a 19% year-over-year (YoY) growth while beating Wall Street estimates of $90.69 billion.

Additionally, its posted adjusted earnings per share (EPS) of $4.89 outperformed a consensus projection of $4.73.

Even more, the company recorded an operational income of $45.9 billion. This broke the estimated $44.06 billion and represented a 21% year-over-year (YoY) growth. Adjusted net income came in at $36.4 billion, also surpassing the analyst projection of $35.13 billion.

Notably, Microsoft adopted a new reporting style beginning in its fiscal year 2027 (September 2026) where is splits revenue reports into two categories, namely: 

• AI agents and infrastructure – revenue hit $76.8 billion, outdoing the $75.6 billion estimate.
• Devices and consumer – revenue hit $15.5 billion, surpassing the $15.0 billion estimate.

Even more, the company reported Microsoft Azure’s revenue for the first time since its official release in 2010. Revenue grew 48% YoY to reach $33.17 billion, soundly beating the forecasted $45% growth, while Microsoft Cloud’s revenue came in at $63.9 billion, representing 30% YoY growth.

In terms of capital expenditures (CapEx), Microsoft spent $39.4 billion in that quarter, vastly steering away from the estimated $46.59 billion. The CapEx-to-revenue ratio was at around 42.7% due to massive cash deployment into AI build-out.

Finally, shareholders received a total of $10.2 billion via dividends and share repurchases. Meanwhile, free cash flow reached $18.6 billion due to lighter-than-expected spending on infrastructure and soaring revenue.

Executive commentary and guidance for the next quarter

Microsoft CEO Satya Nadella highlighted the company’s super intelligence focus, noting:

“By helping organizations build and own their own intelligence, and earning trust through agent safety and security, we are translating our innovation into growing adoption and real-world impact across every industry.”

CFO Amy Hood focused on the positive earnings report, saying:

“Results exceeded expectations across revenue, operating income, and earnings per share.”

For the next quarter, the company projects earnings of $96.0 billion to $97.1 billion, representing an 18%-19% YoY growth rate. It also forecasts Azure’s growth to reach 49%-50%, and CapEx to top $50 billion.

Microsoft stock price (MSFT) action and future target

Hood’s forecasts and immense capital commitments contributed to positive investor sentiment over MSFT stock. 24-hour gains are at 3%, and 3-month performance is at 17.71%.

Source: MarketWatch

The average analyst recommendation for the stock is a “buy”, with $610.34 as the average target price.