Microsoft (NASDAQ:MSFT) hit a fresh 52-week low in June, but the company has outperformed the broader equity market ever since. And by the looks of it, Microsoft’s run may continue at least a little while longer. The company recently reported its first-quarter 2027 update, and it was impressive. Microsoft gave investors plenty more reasons to buy the stock. Here’s what you need to know.
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An excellent quarterly update
Before looking at the numbers, let’s review why Microsoft did not perform well through the first half of the year. Some investors think that artificial intelligence (AI) will disrupt the software industry and replace many services offered by software companies, such as Microsoft.
Some recent developments support that view. For instance, a single developer used AI to clone several legacy products in the Microsoft Productivity suite, including Word, Excel, and PowerPoint, as well as products from other major software companies, such as Adobe (NASDAQ:ADBE). These knock-offs weren’t fully functional. Still, it’s quite a remarkable achievement, and it highlights why some people are worried about Microsoft’s future.
The cost of developing software has fallen rapidly thanks to AI, which puts the company at risk. However, so far, Microsoft’s financial results suggest that it is doing just fine. In the first quarter of its fiscal year 2027, which ended on Sept. 30, Microsoft’s revenue of $92.3 billion increased by 19% year over year. Microsoft’s operating income grew 21% year over year to $45.9 billion, while its non-GAAP net earnings per share were $4.89, up 18% year over year.
Microsoft debuted a new reporting structure with two segments this quarter. The first, Agents and Infra, did most of the heavy lifting. Revenue from this unit was $76.8 billion, up 25% year over year. Microsoft Cloud revenue jumped 30% year over year to $63.9 billion, while Azure revenue grew 48% year over year to $33.2 billion. Microsoft’s results beat analyst estimates. But is there more growth ahead for the company?
There is more where that came from
One important metric for Microsoft is remaining performance obligations (RPO), or the amount of contracted revenue that hasn’t yet been recognized. This metric indicates demand — or lack thereof — for the company’s services. By the end of the first quarter of fiscal year 2027, Microsoft had $677 billion in RPO within its Agents and Infra business. Note that this figure grew by 73% year over year.
