Microsoft Q1 2026: Five Things to Watch

Microsoft delivered fiscal Q3 (March 2026) revenue of $82.89 billion, up 18% year-on-year, with EPS of $4.27 beating consensus by twenty-one cents. Azure grew 40% in constant currency, lifting total Microsoft Cloud revenue to $54.5 billion and pushing commercial remaining performance obligations to a remarkable $627 billion — up 99% year-on-year. AI annualised revenue hit $37 billion, growing 123%. By every conventional measure, this was an excellent quarter. The market did not treat it that way. Shares fell approximately 4.4% on April 30 as investors processed the company's updated calendar-year 2026 capital expenditure guidance of roughly $190 billion — some $35 billion above prior consensus — alongside free cash flow that fell 22% to $15.8 billion even as earnings rose. The question the market is now asking of Microsoft is not whether AI demand exists, but whether the economics of serving that demand will ever fully return to shareholders.