Microsoft Q1 beats as Azure grows 48% and capex lands $6bn below forecast

The capex figure is likely to drive the reaction as much as the beat itself. Lower than expected spending alongside stronger Azure growth supports Microsoft’s margins and its AI return-on-investment case. It could weigh on sentiment toward AI hardware and data centre suppliers if traders read it as a slowdown in hyperscaler orders. The result also sets a high bar for the AI cloud trade into the remaining megacap reports.--- Microsoft grew Azure faster than expected on far less capital spending than forecast, a combination that strengthens its AI payback story but will raise questions about the pace of the build-out.Summary:Adjusted EPS of $4.89 beat the $4.73 consensus; reported EPS was $4.92Revenue of around $92 billion topped estimates of about $91 billionOperating income of around $46 billion beat forecasts of about $44 billionCloud revenue reached around $64 billion, ahead of the roughly $62 billion expectedAzure revenue grew 48% excluding currency effects, versus forecasts of about 45%Capital expenditure of around $39 billion fell well short of the roughly $46 billion analysts had projected Microsoft beat Wall Street expectations across its main metrics in its fiscal first quarter, with Azure growth accelerating well past forecasts while capital spending came in sharply below what analysts had pencilled in.Adjusted earnings per share came in at $4.89, ahead of the $4.73 consensus, while reported EPS was $4.92. Revenue reached around $92 billion, roughly $1.7 billion above the estimate of about $91 billion. Operating income of around $46 billion topped expectations by roughly $2 billion, pointing to solid margins alongside the revenue beat.The cloud business remained the centrepiece. Cloud revenue climbed to around $64 billion, against forecasts of about $62 billion, and Azure revenue grew 48% excluding currency effects, comfortably above the roughly 45% analysts had expected. Azure growth is the figure investors watch most closely as a gauge of corporate demand for AI services running on Microsoft’s infrastructure, so a beat of more than three percentage points is a meaningful outperformance.The surprise in the release was capital expenditure. Microsoft spent around $39 billion in the quarter, well short of the roughly $46 billion analysts had projected, a gap of more than $6 billion. That contrast will draw attention. Delivering faster Azure growth on lower than expected spending suggests the company is extracting more revenue from capacity already built, which supports the return-on-investment case for its AI build-out.The lower capex figure can be read more than one way, however. It may reflect the timing of equipment deliveries, data centre construction schedules or supply constraints rather than a deliberate slowdown, and the quarterly number alone does not show which. Management’s commentary on the earnings call, and any update to full-year spending plans, will be needed to judge whether the shortfall is a one-quarter timing effect or a change in the investment trajectory.The call and the company’s guidance for the current quarter, particularly for Azure growth and capital spending, will now set the tone for the stock in the next session.  This article was written by Eamonn Sheridan at investinglive.com.