Microsoft first quarter fiscal 2027 earnings explained: segments, EPS and valuation multiples

Microsoft reported results for the first quarter of its 2027 fiscal year on October 28, 2026. Microsoft's fiscal year runs from July to June, so this quarter covers the three months ended September 30, 2026. Revenue rose 2.5% from the quarter before and operating income rose 13.1%, while GAAP net income rose 2.4% (Dalsna Finance calculation). This article walks through what Microsoft does, how its businesses performed and what the numbers say about its valuation. Every figure is sourced and dated, and every number worked out by us is labelled as a Dalsna Finance calculation. ^[1][2]

Microsoft in brief

Microsoft Corporation, based in Redmond, Washington, sells software, cloud computing and devices. Its best known names include Windows, Microsoft 365 (which includes Office), the Azure cloud, Copilot, GitHub, LinkedIn, Dynamics 365, the Bing search engine, XBOX and Surface. Its shares trade on the Nasdaq under the ticker MSFT, and StockAnalysis lists price history for them going back to 1986. ^[1][3][4]

In the release, chief executive Satya Nadella said Microsoft is helping organizations build and own their own intelligence and is earning trust through agent safety and security (an attributed paraphrase). Chief financial officer Amy Hood said results beat expectations on revenue, operating income and earnings per share (also a paraphrase). Microsoft Cloud revenue, a figure Microsoft gives across its cloud businesses, was $63.9 billion, up 30% from a year earlier, as reported by the company. ^[1]

Two new segments

In September 2026 Microsoft announced a new way of reporting its business. Until the fourth quarter of fiscal 2026 it used three segments: Productivity and Business Processes, Intelligent Cloud and More Personal Computing. In that quarter they had revenue of $37.8 billion, $39.3 billion and $12.9 billion. From fiscal 2027 it reports two segments, Agents and Infra on one side and Devices and Consumer on the other, and it has recast past figures to match. ^[2][3][1]

Agents and Infra brings together Microsoft's applications and AI agents with the Azure cloud. It covers Azure, Microsoft 365 cloud (including Microsoft 365 Copilot and GitHub cloud services), productivity and server licensing such as SQL Server and Windows Server, industry solutions such as LinkedIn Talent Solutions and Dynamics 365, plus frontier and support services. Devices and Consumer covers Search and advertising (Bing, Microsoft Edge, MSN and LinkedIn Marketing Solutions) and XBOX, plus Windows OEM and devices, meaning Windows licences sold through PC makers plus Surface and PC accessories. ^[3]

The filings used here give recast segment figures for the same quarter a year earlier and for whole fiscal years, but not for the fourth quarter of fiscal 2026 on its own. So the segment comparison below is year over year. Agents and Infra did most of the growing: revenue rose 24.5% to $76,795 million and operating income rose 24.0% to $40,558 million. Devices and Consumer revenue fell 3.2% to $15,484 million while its operating income rose 2.2% to $5,357 million (Dalsna Finance calculation for the percentages, which Microsoft rounds to 25%, 24%, 3% and 2%). Microsoft said Azure revenue grew 48%. ^[1][5]

Where the revenue comes from

Microsoft also splits revenue into eight product and service lines. Azure was the largest at $33,165 million, up $10,781 million from a year earlier. Windows OEM and devices fell the most, by $1,000 million, which Microsoft reported as a 22% decline. The quarterly report says Devices and Consumer revenue fell mainly because of Windows OEM and devices, partly offset by growth in Search and advertising. ^[1][5]

The numbers, quarter over quarter

Revenue was $92,279 million in the first quarter of fiscal 2027, against $90,007 million in the fourth quarter of fiscal 2026. Gross margin, which Microsoft uses for revenue minus the direct cost of what was sold, rose 3.4% to $62,559 million. Operating income, which also takes off research, sales and administrative costs, rose 13.1% to $45,915 million. Net income under GAAP, the standard US accounting rules, rose 2.4% to $36,629 million (Dalsna Finance calculation for the changes). ^[1][2]

Net income grew more slowly than operating income because of other income, which sits below the operating line. It was $3,444 million in the fourth quarter but only $38 million in the first. In its fourth quarter release Microsoft said discrete items, including a $3.2 billion gain from its investment in Anthropic, added $0.27 to diluted EPS compared with its guidance. The quarterly report says the line called other, net within other income mainly reflects gains or losses on investments accounted for under the equity method, including OpenAI. ^[1][2][5]

Profit margin is net income as a share of revenue: 39.7% in both quarters (Dalsna Finance calculation: $36,629 million divided by $92,279 million, and $35,766 million divided by $90,007 million). The operating margin, operating income divided by revenue, rose to 49.8% from 45.1%. Against the first quarter of fiscal 2026, revenue was up 18.8% from $77,673 million, which Microsoft rounds to 19%, and net income was up 32.0% from $27,747 million (Dalsna Finance calculation). ^[1][2]

Earnings per share

Earnings per share, or EPS, is profit divided by the number of shares. The diluted figure also counts shares that could be created from stock awards. Microsoft reported diluted EPS of $4.92 for the first quarter of fiscal 2027 and $4.81 for the fourth quarter of fiscal 2026. Dividing net income by the diluted share count gives the same figures. ^[1][2]

Microsoft also reports adjusted (non GAAP) net income and EPS. Its only adjustment is to take out the effect of its investments in OpenAI, which it holds under the equity method, so its share of OpenAI's gains or losses lands in other income. In the first quarter net gains from OpenAI added $207 million to net income and $0.03 to diluted EPS, so adjusted EPS was $4.89. In the fourth quarter they added $480 million and $0.07, for adjusted EPS of $4.74. The adjustment does not take out other investment gains, such as the Anthropic gain in the fourth quarter. ^[1][2][5]

What the market values Microsoft at

Market capitalization, or market cap, is what the stock market values the whole company at: the share price times the number of shares. Microsoft's shares closed at $521.91 on Friday, October 30, 2026, as reported by StockAnalysis. The cover of its first quarter report to the SEC lists 7,426,194,552 shares outstanding as of October 22, 2026. That gives a market cap of about $3.88 trillion (Dalsna Finance calculation). Every multiple and share price below uses this one share count. ^[4][5]

Six valuation multiples

The price to earnings ratio, or P/E, is market cap divided by a year of earnings. It shows how many dollars the market is paying for each dollar of yearly profit. Annualised means one quarter multiplied by four. On that basis Microsoft has a P/E of 26.5 (Dalsna Finance calculation: $3,875.8 billion divided by $36,629 million times 4, which is $146,516 million). On adjusted net income times 4, $145,688 million, the adjusted P/E is 26.6. ^[1][4][5]

A forward P/E uses an estimate of future earnings. Simply Wall St reported on August 1, 2026, after the fourth quarter results, that the 48 analysts covering Microsoft expected EPS of $19.64 for fiscal 2027. Multiplying that by the same 7,426.2 million shares gives estimated earnings of about $145,850 million and a forward P/E of 26.6 (Dalsna Finance calculation on an estimate, analyst consensus as reported by Simply Wall St). The estimate is three months old and predates these results. Simply Wall St describes these as statutory forecasts, the same basis it uses for Microsoft's reported $17.95 of fiscal 2026 EPS, so this is a forward P/E on GAAP earnings. It gives no adjusted estimate, so we show no separate adjusted forward P/E. ^[6][4][5]

A trailing P/E, sometimes called a historical P/E, uses the last four reported quarters. Net income over the twelve months to September 30, 2026 added up to $142,631 million, which gives a trailing P/E of 27.2. Adjusted net income over the same four quarters was $134,375 million, for an adjusted trailing P/E of 28.8 (Dalsna Finance calculation). The adjusted figure is lower because OpenAI added $8,256 million to net income over the period (Dalsna Finance calculation from the table further down). Microsoft reported that $7,583 million of that came in the second quarter of fiscal 2026. ^{[1][2][7][8][4][5]}

The last four quarters

Each of the last four quarters is reported in its own earnings release. The second quarter of fiscal 2026, the three months ended December 31, 2025, stands out: GAAP net income of $38,458 million was well above adjusted net income of $30,875 million, because Microsoft's OpenAI investments added $7,583 million that quarter. As a check, fiscal 2026 net income of $133,749 million in the fourth quarter release equals the four fiscal 2026 quarters added together, $27,747 million, $38,458 million, $31,778 million and $35,766 million (Dalsna Finance calculation). ^[8][1][7][2]

Two base cases: the first quarter held flat for a year

Suppose revenue stayed at the first quarter's level for a full year, with no growth and no decline: $92,279 million times 4, or $369,116 million. The first base case keeps the 39.7% profit margin, which gives earnings of $146,516 million, or $19.73 per share on the cover share count. The second keeps the 39.5% adjusted profit margin, which gives $145,688 million, or $19.62 per share. Each case is simply the latest quarter annualised, so at its own annualised P/E it returns the October 30, 2026 close of $521.91 by construction. The other cells only show how the price moves when the same earnings are given a different multiple. ^[1][4][5]

There is no separate operating margin case. Other income was only $38 million in the first quarter and Microsoft's own adjusted figure already takes out the $207 million net gain from OpenAI, so little below the operating line lifted net income. We found no one time item inside first quarter operating income that Microsoft put a figure on, so nothing else is taken out. ^[1]

What to watch

Microsoft's release gives no numeric guidance and says guidance is given on its earnings call, which this article does not cover. Additions to property and equipment were $39,367 million in the first quarter against $35,802 million in the fourth, while cash from operations was $58,000 million against $55,441 million. The next report will show whether that spending keeps rising faster than cash from operations. ^[1][2]

Microsoft said its commercial remaining performance obligation, contracted revenue not yet recognised, rose 73% from a year earlier to $677 billion. Because its share of OpenAI's results runs through other income, readers may want to watch both GAAP and adjusted net income, and the quarters ahead will be the first full year reported under the two new segments. ^[1][5]

How these figures were made: inputs come from Microsoft's earnings releases for the second, third and fourth quarters of fiscal 2026 and the first quarter of fiscal 2027, its recast fiscal 2026 segment information and its first quarter fiscal 2027 quarterly report on SEC EDGAR, plus the dated closing price and the dated consensus report named above. Calculations use unrounded inputs and are rounded only at the end, with multiples to one decimal and per share figures and prices to the cent. ^{[1][5][3][2][7][8][4][6]}