Microsoft's latest results: comparing cloud growth with profitability

Microsoft reported $92.3 billion September-quarter revenue. Year-over-year, Azure grew 48% and net income rose 32% under GAAP, or 18% excluding OpenAI investment effects.¹

Archival photograph: the Microsoft campus in Redmond, Washington, United States. Image: Microsoft; Used with permission from Microsoft.

Two growth rates: first establish what is being compared

The difference does not mean the company has published two contradictory profit figures. Rather, two measurement bases answer different questions. Results calculated under US generally accepted accounting principles and measures deliberately excluding specified items can be read side by side, but cannot be used interchangeably in the same sentence. In particular, a growth rate on one basis cannot explain operating performance measured on another.

The US Securities and Exchange Commission's Financial Reporting Manual defines a non-GAAP measure as a financial measure that adds or excludes amounts relative to the most directly comparable GAAP measure. The manual also explains that public disclosure of such measures requires presenting the comparable GAAP measure and reconciling the differences. The purpose is to make the adjustments visible to readers, not to make “adjusted” automatically synonymous with more accurate, better or worse.²

Year-over-year growth also has an easily overlooked denominator: the same period a year earlier. Understanding how an adjustment affects growth requires examining both the current and comparison periods. Even when two current-period totals are close, the two year-over-year growth rates need not be, because their comparison-period bases may differ. Financial statements should be read by aligning measurement definitions first, then periods, and only then assessing the change. The subject here is net income—not operating profit or cash flow.

Cloud revenue is not a return on AI investment

This quarter's revenue cannot directly answer how much each dollar of AI capital investment has earned back. Cloud services, model capabilities and infrastructure do not share a single measurement boundary. Classifying all cloud revenue as AI would combine distinct sources of business.

Likewise, equipment purchases, data centres entering service, customers beginning to use services and revenue appearing in the accounts need not occur at the same time. One quarter's revenue change cannot by itself establish that all earlier investment has been recovered or determine the profitability of future expansion projects. This is an analysis of what financial measures can tell us, not a new estimate of the company's investment returns.

Discussion of future demand must also avoid equating customer commitments with completed business. Orders, services actually delivered and recognised revenue belong to different stages in time. Whether contracts are fulfilled requires subsequent evidence of delivery, not a conclusion drawn solely from this quarter's growth rate.

These results therefore call for revenue, profit definitions and capital use to be considered together. A single quarter's figures do not guarantee long-term returns; choosing the highest growth rate to represent the entire business also overlooks differences in accounting basis and timing.

Source notes

1. 2026-10-28 · Microsoft Announces First Quarter Results · Microsoft. ↩

2. Page dated 2017-12-11 · Financial Reporting Manual — Topic 8, Sections 8120 and 8130 · US Securities and Exchange Commission; used to explain non-GAAP measures, not to imply that the agency has assessed these results. ↩