Microsoft (MSFT) reported revenue of $92.28B for its fiscal first quarter ended Sept. 30, 2026, higher than a year earlier and above the analyst estimate, and its operating margin rose to 49.8%. The catch is cash: capital spending was far above a year earlier, so free cash flow was lower. Figures are current as of Nov. 6-7, 2026 and cover the quarter filed on Oct. 28, 2026.
Key facts
- Oct. 28, 2026 report: Earnings per share (EPS) were 4.89 USD against an analyst estimate of 4.72 USD, a difference of +$0.17 (3.6%). Revenue of $92.28B compared with an estimate of $90.62B, a difference of +$1.66B (1.8%). The filing shows diluted EPS of 4.92 USD for the quarter.
- Growth vs year-ago: Revenue in the quarter ended Sept. 30, 2026 was up 18.8% from the quarter ended Sept. 30, 2025 ($77.67B). Net income was $36.63B, up 32.0% from $27.75B.
- Margin: Operating income was $45.91B, an operating margin of 49.8%, against 48.9% in the year-ago quarter.
- Cash: Operating cash flow was $58.00B and capital spending was $39.37B, leaving free cash flow of $18.63B.
- Stock, Nov. 6, 2026: 530.61 USD, down 0.99% on the day. The 52-week range is 349.2-559.15 USD. Market cap is $3.94T.
- Next report: Jan. 27, 2027, with an EPS estimate of 4.86 USD and a revenue estimate of $96.61B.
What happened
Microsoft beat analyst estimates on both profit and sales in the quarter ended Sept. 30, 2026. Revenue was $92.28B, up from $77.67B in the same quarter a year earlier. Net income rose faster than revenue, which means more of each sales dollar reached the bottom line. Net margin (net income as a share of revenue) over the trailing 12 months is 41.2%.
The five-quarter trend shows what changed:
| Quarter ended | Revenue | Gross margin | Operating margin |
|---|---|---|---|
| Sept. 30, 2025 | $77.67B | 69.0% | 48.9% |
| Dec. 31, 2025 | $81.27B | 68.0% | 47.1% |
| Mar. 31, 2026 | $82.89B | 67.6% | 46.3% |
| June 30, 2026 | $90.01B | 67.2% | 45.1% |
| Sept. 30, 2026 | $92.28B | 67.8% | 49.8% |
Operating margin slid each quarter through the June 2026 quarter, then rose in the September 2026 quarter. Gross margin (gross profit, meaning sales minus direct costs, as a share of sales) also ticked up from 67.2% to 67.8%, though it remains below the year-ago 69.0%. So the September quarter reversed a slide in operating margin, but gross margin has not fully recovered. Our data does not say why. We did not have the earnings call transcript, so we cannot quote management on the drivers or on guidance.
Where the growth comes from. Our segment data covers the quarter ended June 30, 2026 (the September split was not in our data). In that quarter, Server products and cloud services revenue was $37.10B, against $27.88B in the year-ago quarter ended June 30, 2025. Microsoft 365 Commercial products and cloud services was $27.91B, against $24.32B. LinkedIn was $5.19B, against $4.62B. Windows and Devices was $4.01B, against $4.33B. XBOX was $4.98B, against $5.53B reported as Gaming a year earlier, though the category labels differ so the comparison is approximate. Cloud servers and Microsoft 365 for business carried the growth, while Windows and Devices and XBOX/Gaming were lower. By geography, the September 2026 quarter brought $49.46B from the United States and $42.82B from outside it.
The cash picture. Operating cash flow of $58.00B was higher than the $45.06B of the year-ago quarter. But capital spending was $39.37B against $19.39B a year earlier. Free cash flow (operating cash flow minus capital spending) was therefore $18.63B, below the $25.66B of the quarter ended Sept. 30, 2025. Across the five quarters, free cash flow was $5.88B in the December 2025 quarter, $15.80B in March 2026, $19.64B in June 2026 and $18.63B in September 2026. In the September 2026 quarter, Microsoft also returned $4.38B in buybacks and $6.76B in dividends.
Why it matters for investors
The quarter shows a company growing quickly and earning high margins while spending heavily to build capacity. Whether that spending pays off is the central question around the stock.
Valuation versus peers. Microsoft trades at a trailing 12-month price-to-earnings (P/E) ratio of 27.64. Price-to-free-cash-flow is 65.72, which reflects the large spending. Peer figures from our data:
| Company | P/E (trailing) | Net margin |
|---|---|---|
| Microsoft (MSFT) | 27.64 | 41.2% |
| Accenture (ACN) | 19.07 | 11.3% |
| Adobe (ADBE) | 13.33 | 28.0% |
| Amazon (AMZN) | 20.68 | 16.9% |
| Salesforce (CRM) | 19.42 | 22.0% |
Microsoft's net margin is higher than every peer listed, and so is its P/E. Investors are paying more per dollar of earnings, in return for higher profitability.
Balance sheet. At Sept. 30, 2026, Microsoft held $64.64B in cash and short-term investments against $133.93B of total debt, for net debt of $113.65B. Debt-to-equity is 0.28 and shareholders' equity is $470.51B. Its Altman Z-score (a bankruptcy-risk gauge, where higher is safer) is 9.55, and its Piotroski score (a 0-9 financial health check) is 6.
Analysts. Of 83 ratings, 68 are buy and 15 are hold, with none at sell; the consensus is "Buy". Analyst price targets average 611.74 USD (median 625.00 USD), with a range of 440.00 USD to 750.00 USD. Several firms, including Piper Sandler, RBC Capital, Citigroup, DA Davidson, TD Cowen and Bernstein, maintained their positive ratings on Oct. 29, 2026. For scale, the Nov. 6 price of 530.61 USD sits below the average target. A separate FMP discounted cash flow model puts value at 306.96 USD per share, a model output that rests on assumptions and is far below the market price.
Our MoonshotScore. Stock Expert AI's MoonshotScore V2 for Microsoft is 85.2, rated Exceptional. The pillars, scored against its sector, are quality 89, momentum 87, growth 79, safety 75 and valuation 30. Strengths are quality and momentum; the weak area is valuation, which matches the high P/E and price-to-free-cash-flow above.
What could go wrong. The risks visible in our data are:
- Capital spending is large and still rising, which holds down free cash flow.
- The valuation leaves less room for disappointment. The valuation pillar is the weakest of the five.
- Gross margin remains below its year-ago level.
- Among the 30 most recent insider filings, those from the last 90 days show 0 open-market purchases and 9 sales (older filings may be missing). Sales are common for executives with stock awards, so this alone says little.
- Press headlines from Nov. 7, 2026 discuss AI spending worries and a reported change in an AI deal involving Oracle. We have not verified those reports.
What to watch next
The next report is expected Jan. 27, 2027, with a revenue estimate of $96.61B and an EPS estimate of 4.86 USD. Watch three things: whether operating margin holds near the September 2026 level, whether capital spending keeps rising faster than operating cash flow, and whether free cash flow recovers. Longer term, analysts' estimates for the period ending Sept. 30, 2029 are revenue of $136.06B and EPS of 8.38 USD, from 14 analysts.
Frequently asked questions
Q: Did Microsoft beat earnings estimates in the quarter ended Sept. 30, 2026?
Yes. Microsoft reported EPS of 4.89 USD against an analyst estimate of 4.72 USD, and revenue of $92.28B against an estimate of $90.62B. Revenue was 18.8% higher than in the quarter ended Sept. 30, 2025.
Q: Why is Microsoft's free cash flow lower than a year ago if profits are higher?
In the quarter ended Sept. 30, 2026, Microsoft's capital spending was $39.37B, against $19.39B a year earlier. Operating cash flow rose to $58.00B, but the spending left free cash flow at $18.63B, below the $25.66B of the year-ago quarter.
Q: Is Microsoft stock expensive compared with its peers?
On trailing 12-month P/E, Microsoft is at 27.64 against 19.07 for Accenture, 13.33 for Adobe, 20.68 for Amazon and 19.42 for Salesforce. Its net margin of 41.2% is also higher than each of them. Our MoonshotScore valuation pillar for Microsoft is 30, its weakest. This is a description of the data, not advice.
What our data could not verify
We had no earnings call transcript or company release, so management's explanations and guidance are not covered. Segment data for the September 2026 quarter was not available; the segment figures above are for the quarter ended June 30, 2026. The 4.89 USD EPS used for the estimate comparison differs from the 4.92 USD diluted EPS in the filing, and we did not determine the reason.
Sources: Stock Expert AI data (MoonshotScore) and FMP market, financial and analyst data as of Nov. 6-7, 2026. Third-party headlines (Motley Fool, 24/7 Wall St.) were used for context only and are not verified by us.
This is educational content, not investment advice. Past performance does not guarantee future results.