Azure grew 48% as Microsoft’s $677 billion backlog funds its AI spending

Microsoft’s AI spending is showing up in its results. In the quarter ended September 30, 2026, which Bloomberg framed as an AI bet paying off, the company reported revenue of $92.3 billion, up 19%, and Azure growth of 48%, according to Microsoft’s first quarter release of October 28.

The numbers behind the headline

Microsoft’s GAAP operating income was $45.9 billion, up 21%. Net income was $36.6 billion, up 32%, and diluted earnings per share were $4.92, also up 32%. That GAAP figure includes the effect of the company’s OpenAI investment. Excluding it, Microsoft reported net income of $36.4 billion, up 18%, and earnings per share of $4.89.

Microsoft Cloud revenue reached $63.9 billion, up 30%. Azure, the unit that sells AI computing capacity and related services, grew 48%. Microsoft now reports in two segments: Agents and Infra brought in $76.8 billion, up 25%, while Devices and Consumer fell 3% to $15.5 billion.

The figure that may matter most for the long term is commercial remaining performance obligation, the value of contracted work not yet recognized as revenue. It rose 73% to $677 billion. The company also returned $10.2 billion to shareholders through dividends and buybacks.

CEO Satya Nadella summed up the quarter this way: “We are delivering greater capability, choice, control, and cost efficiency for customers across our entire stack.” CFO Amy Hood described it as a strong start to the fiscal year.

Backlog is large, but so is the bill to serve it

Demand is only half of the economics. Serving that backlog takes data centers, chips and power, and the cost is rising. According to a transcript of the earnings call published by the Motley Fool, capital expenditures were $45.2 billion in the quarter, and management expects them to exceed $50 billion in the next one. These figures come from secondary coverage, not the release itself.

The financing side has moved quickly. CNBC reported on October 29 that Microsoft is targeting about $170 billion of capital spending for 2026, and that it plans a $25 billion bond offering. As we covered in our piece on the bond plan and AAA credit, Bloomberg’s report described it as the company’s first US investment-grade sale since 2017. CNBC also noted that Microsoft’s free cash flow was positive this quarter, while Alphabet’s was negative for a second straight quarter.

That contrast is the core of the story. A 73% jump in contracted backlog gives Microsoft some visibility that the spending has buyers behind it. But backlog is a promise to pay over time, not cash in hand. The release does not say how much of the $677 billion is expected to convert to revenue in the next year, or how much comes from a few large AI customers, so the quality of the backlog cannot be judged from it.

What the sources leave out

The headline growth rates are Microsoft’s own, and this article has not checked them independently. The press release gives no breakdown of AI-specific revenue, no Copilot seat count and no figure for how much of the Azure growth comes from OpenAI or other AI labs. Without those, the claim that the AI bet is paying off rests on total cloud growth rather than on direct proof of AI profits.

The call coverage also pointed to some softer spots. The Motley Fool transcript noted weaker sales execution in some Microsoft 365 products, and Devices and Consumer shrank. Investors will watch whether the company’s cost of building capacity grows faster than the revenue it brings in, which is the question behind both the capex guidance and the bond deal. Oracle, another heavy AI spender, announced a plan to raise $10 billion in new debt, according to CNBC, so Microsoft is not alone in turning to borrowing.

For customers, the practical meaning is capacity. A company growing Azure at 48% while spending over $45 billion a quarter is signaling that it expects demand for AI compute to stay strong. Whether that demand justifies the spending will show in the next few quarters of margins and free cash flow, which the release does not forecast.