Microsoft Q1 FY 2026 Preview: Can AI Keep Powering the Cloud Story?

Microsoft Corporation MSFT releases its fiscal first-quarter 2026 results after the market closes on October 29. Analysts forecast EPS of $3.67 on revenue of roughly $73.4 billion, reflecting sustained strength in cloud and AI adoption. The stock has surged about 25% so far this year, supported by investor confidence that Microsoft remains at the center of the corporate AI transformation story.

Last quarter, the company reported revenue growth of 18% to $76 billion, with Intelligent Cloud up 26% and Azure growth reaccelerating to 39%. While this quarter's discussion will be around margins. Microsoft's operating margin stood at 45% last quarter, supported by continued cost discipline. However, management has warned that margins could tighten as data-center expansion continues. Beyond Azure, attention will turn to early signs of AI monetization through Copilot in Office 365, GitHub, and Dynamics, which could show how effectively Microsoft is turning excitement into recurring revenue.

Free cash flow remains one of Microsoft's biggest strengths. The company generated nearly $26 billion in FCF last quarter and continues to return significant capital through dividends and buybacks. Management has said it expects to moderate capital expenditures in fiscal 2026 compared with 2025. Now, investors will be looking for the right balance. Microsoft needs to keep investing enough to stay ahead in cloud and AI, but too little, and the company risks losing ground to its rivals.

Right now, the focus is on whether management can prove that growth and profitability can coexist as the AI cycle evolves.