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Microsoft (MSFT) is trading modestly lower despite an impressive start to FY26. The software titan posted its largest EPS beat in the past five years, with fiscal Q1 (Sep) revenue surging 18.4% yr/yr to $77.67 bln, topping the $77 bln mark for the first time ever. It was also Microsoft's strongest revenue growth since 3QFY22, showcasing broad-based strength across all segments — with Azure once again leading the charge. The only modest disappointment was management's in-line Q2 (Dec) revenue outlook, following an upside guide last quarter.

• Azure grew +39% CC (constant currency), surpassing prior guidance of +37% CC, fueled by robust demand from hyperscale and enterprise customers. Demand continued to exceed supply across AI and infrastructure workloads, even as Microsoft added more capacity. For Q2 (Dec), MSFT expects Azure growth of +37% CC, signaling still-strong momentum despite persistent capacity constraints.
• Productivity and Business Processes and More Personal Computing (MPC) segments also exceeded expectations. Within MPC, Windows OEM and Devices revenue jumped 6% yr/yr, far above internal expectations, driven by pre-upgrade demand ahead of Windows 10's end-of-support date.
• Cap-ex surged to $34.9 bln, up from prior guidance of "over $30 bln." Notably, MSFT now expects FY26 cap-ex growth to outpace FY25, a reversal from prior commentary that spending would moderate next year.
• Microsoft plans to increase spending on GPUs and CPUs sequentially in Q2 and will boost AI capacity by 80% this year while doubling its datacenter footprint over the next two years — underscoring soaring enterprise AI demand and backlog growth.

Briefing.com Analyst Insight:

Despite the stellar numbers, shares are slightly lower today. Investors appear to be reacting to the in-line Q2 guidance, a smaller Azure upside surprise than prior quarters, and a broader tech rotation following the sector's recent rally. The Azure metrics reinforce Microsoft's AI leadership and signal durable enterprise demand. However, the muted Q2 guide and decelerating magnitude of Azure beats could temper near-term enthusiasm. We view the pullback today as more technical than fundamental, driven by high expectations and sector rotation.