There’s never a quiet quarter at Microsoft, but Wednesday’s report feels especially loaded. The company’s first earnings call of its 2027 fiscal year, covering the three months ended Sept. 30, comes just two days after Microsoft offered voluntary buyouts to roughly 60,000 employees, about a quarter of its entire workforce. That timing puts executives in an uncomfortable spot: they get to explain what the buyout will cost, why it’s happening, and how it fits into a broader vision for the company’s people, all while presenting the usual barrage of growth numbers. This is also the first earnings report under Microsoft’s new financial reporting structure, which is a bigger deal than it sounds because it changes how investors can compare results to past quarters. Add in Anthropic’s IPO filing on Monday, which revealed just how much money the Claude maker is planning to spend on Microsoft’s cloud, and you have a report that’s about more than a revenue beat. Investors will be listening for signals about AI demand, capital spending discipline, and whether the company can keep pleasing Wall Street without sacrificing its long-term bets. Coming into the report, Microsoft’s stock is near its high, closing Monday at $532.60, about 2% below its record close of $543.45 set on Oct. 13, after the company gained roughly $1.4 trillion in market value since late June. Against that backdrop, expectations are high. Analysts expect revenue of $90.75 billion, an increase of nearly 17% from a year ago, and earnings of $4.72 per share, up 14%, according to Yahoo Finance. Microsoft’s own forecast was $89.85 billion to $90.95 billion, so Wall Street is essentially looking for a result near the top end of the range. In July, Microsoft reported $90 billion in revenue for the June quarter, well above the $87.7 billion analysts had expected, so the company has set a high bar for itself. But as anyone who follows Microsoft knows, the number investors truly care about is not always the one on the top line. It’s Azure. It’s AI. It’s whether the enormous spending on data centers is starting to pay off. And on Wednesday, Microsoft will have to tell that story in a new format, with new definitions, and under more scrutiny than ever.
The new scorecard is one of the most important things to understand before reading the results. For years, Microsoft split its business into three main buckets: intelligent cloud, productivity and business processes, and more personal computing. That structure made sense for an older Microsoft, but it no longer reflects where the company actually makes its money. Under the new setup, there are just two groups. The first, called Agents and Infra, is where most of the AI and cloud action lives. It includes Azure, Microsoft 365, Dynamics, LinkedIn’s recruiting and sales tools, and traditional server and productivity licensing. Based on recast figures from fiscal 2026, this group accounted for 81% of Microsoft’s revenue and 88% of its operating income. Microsoft expects Agents and Infra to bring in $75.15 billion to $75.75 billion this quarter, which would be growth of about 22% to 23%, by GeekWire’s calculation. That’s a very fast pace for a business of that size, and it explains why Microsoft has been so willing to pour money into infrastructure. The second group, Devices and Consumer, includes Windows, Xbox and search advertising. This one is expected to bring in $14.7 billion to $15.2 billion, a decline of 5% to 8% from a year earlier. The main culprit is Windows. Microsoft expects revenue from Windows licenses sold to PC makers, along with its own devices, to fall a little more than 20%. Higher memory prices are making PCs more expensive, and PC makers are still working through extra inventory, so it’s not a great moment for the traditional PC business. Within this new structure, Azure also gets a new level of transparency. Microsoft started disclosing Azure’s annual revenue last year, when it passed $75 billion, and it topped $100 billion in fiscal 2026. Starting this quarter, it reports Azure’s revenue every quarter, which gives investors a much clearer window into its biggest growth engine. But there’s a catch: Microsoft also changed what counts as Azure. GitHub’s cloud business and Security Copilot now fall under Microsoft 365, and its healthcare cloud moved to a new industry unit. Counted that way, Azure brought in $29.4 billion in the June quarter, up 42%. Microsoft expects growth of 44% to 45% this quarter, not counting currency fluctuations, which would put Azure at roughly $32 billion. That forecast is in line with what Microsoft projected in July under the old definition, but investors are looking for more. BNP Paribas analyst Stefan Slowinski wrote in a note Monday that investors are looking for about 46% growth. The stakes are high because Azure is the stock’s main driver. In January, Azure beat Microsoft’s own forecast and the stock still fell 10%, because investors had privately expected even more. As analyst Dan Ives put it last week, “Azure moves the stock, but the read that matters is whether capacity is absorbed as fast as it lands.” In other words, it’s not enough to build more data centers. Microsoft needs customers to fill them.
One of the most eye-popping numbers in Wednesday’s report will likely be capital spending. Microsoft expects capital expenditures of more than $50 billion for the quarter, which would be a record. That’s up from $41 billion in the June quarter and $34.9 billion a year earlier. This is the cost of Microsoft’s ambitious AI strategy: building data centers, buying chips, and expanding cloud capacity across the globe. It’s also a number that worries some investors, because the returns on all that spending aren’t guaranteed. But there’s an accounting twist that makes the spending look a little smaller without actually changing how much Microsoft is investing. Microsoft now assumes its data center buildings will last 25 years instead of 15. That change means more of its data center leases will be classified in a way that doesn’t count as capital spending, as CFO Amy Hood explained on the July earnings call. The accounting change alone lowered Microsoft’s capital spending estimate for calendar 2026 to about $175 billion, from the roughly $190 billion it projected in April. Hood was quick to point out that the company’s actual spending plans hadn’t changed. This is a subtle but important distinction: the money is still being spent, but the way it appears on financial statements is different. For shareholders, that can be confusing. On one hand, Microsoft is spending more than ever on infrastructure. On the other, it’s telling investors to expect operating margins to remain roughly flat from a year ago. The cloud gross margin, a closely watched metric, came in at 65% last quarter, which was better than expected but down from the year before. Microsoft said it expects the figure to be relatively stable this quarter, and it expects operating margins to be roughly flat as well. That’s a delicate balance to maintain when you’re spending $50 billion in a single quarter. The company is essentially saying it can have it all: massive growth, huge investments, and stable profitability. That’s a bold claim, and the next few quarters will test whether it’s true. For now, investors seem willing to give Microsoft the benefit of the doubt, but the margin pressure is real, especially as Microsoft tries to monetize AI products that are still in their early innings.
Then there’s the human side of the story. On Monday, Chief People Officer Amy Coleman announced a new “voluntary exit” offer covering participating teams in the U.S., Canada, the U.K. and India. Unlike many restructuring programs, this one has no age or tenure requirement, and it extends to some vice presidents. Employees have until the first week of December to decide whether to accept. Microsoft hasn’t said how much the offer will cost or when it will record the charge, but the April earnings call gave a useful comparison. For the spring retirement program, Hood disclosed the cost at about $900 million, with roughly $350 million in cost of revenue and $550 million in operating expenses. That charge showed up in the following quarter, and about 30% of the 8,750 eligible employees accepted. The new offer is less generous. It matches Microsoft’s standard severance, but without the extended healthcare benefits included in the spring program. The company expects a much smaller share of people to take it. But the pool of eligible employees is nearly seven times larger, so even a smaller acceptance rate could still lead to significant costs. Microsoft insists the offer doesn’t mean it needs fewer people. Coleman said in July that the company was studying whether to make voluntary exits a regular part of managing its workforce. That’s a notable shift in how Microsoft thinks about headcount. It’s also a way to manage costs without the public relations damage of mass layoffs. Microsoft has told investors to expect operating margins roughly flat this quarter and down less than a point for the full fiscal year, even with record capital spending. That’s a pretty clear signal that the buyout costs will be absorbed rather than passed on to customers. But the optics are still awkward. Microsoft had about 223,000 employees as of June 30, before it cut 4,800 jobs in July and more in September. The voluntary exit offer adds another layer of uncertainty for employees. Nadella has addressed this tension before. In a July 2025 memo to employees, after Microsoft laid off about 15,000 people, he acknowledged the “uncertainty and seeming incongruence” of thriving financially while cutting jobs. “This is the enigma of success in an industry that has no franchise value,” he wrote. In his annual shareholder letter last week, he focused on Microsoft’s spending on AI infrastructure, saying, “Based on the demand we see and the efficiencies we are driving, I am confident in the long-term returns on our investments.” The confidence is real, but so is the friction. And to make things more complicated, The Information reported this month that Azure President Girish Bablani told leaders in his group to find ways to cut costs by at least 20%. Microsoft called the report inaccurate and said Azure leadership had not directed teams to develop cost-cutting plans. Still, the fact that such a report exists tells you something about the mood inside the company.
Beyond the infrastructure spend and headcount questions, Microsoft still has to prove that its AI products are actually generating meaningful revenue. Copilot is the big test. In July, Microsoft said businesses were paying for more than 30 million Microsoft 365 Copilot seats, up from 20 million in April. That sounds like strong momentum, but it’s still only about 7% of the more than 450 million commercial Microsoft 365 seats. In other words, there’s enormous room for growth, but also enormous room for disappointment. Microsoft is changing how it charges for Copilot and its other AI tools. In July, it added usage-based billing alongside the traditional per-seat pricing. That’s a significant shift. Instead of just selling a subscription to every employee, Microsoft is also trying to meter how much people actually use the AI features. It’s also pushing customers toward E7, a new premium bundle that includes Copilot. The idea is to capture more value from customers who really embrace AI, while not scaring away those who are still testing the waters. Microsoft expects Microsoft 365 commercial cloud revenue to grow about 17% this quarter, not counting currency swings, and that number now includes GitHub. That’s a healthy growth rate for a mature business, but it’s not the explosive growth investors have come to expect from AI. BNP Paribas analyst Stefan Slowinski, who attended Microsoft’s Frontier Tour event in London last week, wrote that partners are seeing more customers roll out Copilot company-wide. That’s encouraging. But he also noted that Microsoft now ties 35% of E7 sales incentives to how much customers use features like Cowork. That’s a fascinating detail. It means Microsoft’s sales force is being rewarded not just for closing deals, but for getting customers to actually use the product. That’s the right instinct, but it also highlights the challenge: AI products are only valuable if people integrate them into their daily work. If Copilot becomes an essential tool, Microsoft will thrive. If it ends up being a fancy autocomplete that nobody really needs, the backlash could be severe. On Wednesday, Microsoft may provide some color on engagement and usage trends, but the real evidence will come over the next few quarters as we see whether customers continue to expand their Copilot deployments or start cutting back.
Finally, Microsoft’s AI story is intertwined with other companies, and the coming days will bring a clearer picture of that ecosystem. Anthropic, the maker of Claude, filed for an IPO on Monday, and its S-1 filing revealed some striking numbers. The company has committed to spend at least $44.9 billion with Microsoft from November 2026 to May 2033, up from the $30 billion Azure commitment announced last November. That’s a lot of money, but it’s actually far less than Anthropic’s minimum commitments to Amazon at $110 billion and Google at $114.5 billion. Microsoft also agreed last year to invest up to $5 billion in Anthropic, and its June quarter results included a $3.2 billion gain on that investment. So Microsoft has a financial stake in Anthropic’s success, but Anthropic’s biggest cloud relationships are elsewhere. OpenAI, meanwhile, remains Microsoft’s most important AI partner. Microsoft’s commercial remaining performance obligation, or RPO, which measures signed contracts not yet delivered, reached $678 billion last quarter, up 84% from a year earlier. Without OpenAI, the backlog grew 25%. That’s a striking statistic. It shows just how much of Microsoft’s future revenue is tied to OpenAI’s growth. OpenAI told investors its annualized revenue approached $50 billion at the end of September, according to The Information, which is lower than some earlier reports of about $70 billion. But even at $50 billion, OpenAI is a massive force, and its relationship with Microsoft will be central to both companies’ futures. The earnings call on Wednesday will likely include some commentary on this partnership, but investors will be watching for any signs of cracks. There’s also the broader tech landscape to consider. Alphabet reports Wednesday afternoon, and Amazon reports Thursday, which sets up a side-by-side comparison of Azure, Google Cloud and AWS. That’s an unusual opportunity to see how the three largest cloud providers are performing in the same economic environment. And Anthropic is aiming to go public the week of Nov. 16, according to the Wall Street Journal, which means the AI investment story is about to get even more attention. For Microsoft, this is a moment of high visibility and high stakes. The stock is near its high, the company is spending more than ever, and its workforce is navigating a period of uncertainty. Wednesday’s report won’t answer every question, but it will set the tone for the rest of the year. Check back Wednesday afternoon for full coverage.
