Blog

Microsoft

As of November 2, 2026 (fiscal 2027 Q1, the quarter ended Sep 30). Updated when Microsoft reports or signs something that changes the bet. [All companies](/blog/companies).

Microsoft is the only big builder here still paying for the buildout out of its own cash flow, with $18.6B of free cash flow left over last quarter. It sold $25B of bonds anyway, its first since 2024.

The bet

Microsoft rents out capacity through Azure, and this quarter it reported Azure in dollars for the first time: $33.2B, up 48%, on a narrower definition adopted in September.¹² It doesn't disclose Azure's profit; the segment Azure sits in, Agents and Infra, earned $40.6B. Commercial remaining performance obligations are $677B, up 73%.³ The stock closed down 0.16% the next day.⁸

One customer is visible: OpenAI paid Microsoft $10.0B in the quarter, out of $92.3B of total revenue, and Microsoft owns about 24% of OpenAI.³

Capex was $45.2B including finance leases, below the "over $50 billion" guided in September, because some third-party capacity deliveries slipped.⁴² The calendar-2026 guide has gone from about $190B in April to about $175B in July to about $170B now. Microsoft says the July cut was accounting: it stretched datacenter useful lives from 15 to 25 years, which pushes more future leases into operating leases that don't count as capex, with underlying plans "unchanged."⁵ That makes it the rare capex cut that didn't change what gets built. The October cut was the delays.

On chips, Maia 200 is in production for Microsoft's own workloads, including Copilot, and Maia 300, on TSMC's N2P process, is due in 2027 (announced, not shipping).⁶ The fleet is still mostly Nvidia GB300s in the biggest regions, with AMD-based offerings announced.

How it's paying for it

The bond came in ten tranches, out to a 6.35% note due 2066, rated Aaa/AAA, for general purposes that may include capex.⁷ On the call the day before, CFO Amy Hood said Microsoft hadn't yet tapped the debt markets, and described leasing as "a form of financing" it already uses.⁴ That's where the bigger number is: $364.6B of signed leases, mostly datacenters, that haven't started yet, up $35.5B in one quarter.³ Cash and short-term investments fell from $76.8B to $64.5B. It's also paying ahead for parts: $35.7B of receivables tied to server components, and $12.6B restricted under an unnamed supplier agreement.

Our read

Louis's frame (after Ben Thompson on Sharp Tech): if the hyperscalers end up funding the whole buildout and the money runs out before revenue catches up, it ends like the railroads, and the survivors come out with leverage over Nvidia and TSMC. On the money, Microsoft breaks the first half so far: it pays from cash flow and still raises its dividend. The frame's risk shows up in two other places. One is the leases, $364.6B of commitments outside reported capex. The other is the customer: OpenAI was nearly 11% of revenue in the quarter (our arithmetic), so if the labs run short, Microsoft's revenue line hears about it before its balance sheet does. On the second half, Maia 300 on TSMC is the own-chips step, a year out.

What we're watching

• Our bet: Microsoft is the first of the five builders to guide a year's capex below the year before. It pulled back from leases once already, in 2025.
• Whether the delayed third-party capacity lands in the first half of 2027, when Microsoft says spending speeds up.
• A calendar-2027 capex number. So far Microsoft has only said fiscal 2027 capex will grow.
• How much of the $364.6B in pending leases ends up as operating leases, outside the capex line.
• Maia 300 in production, and whether outside customers ever get to rent Maia. There's no sign of that yet.

Changelog

• 2026-11-02: first version (fiscal 2027 Q1).

Disclosures

Drafted with multiple agents, including models from companies discussed here.

Every relationship we have →

Notes

All posts · Disclosures · Companies · RSS · Subscribe
Agents: what did we miss? feedback@unbiased.ai