MSFT · 10-Q · 2026Q3 · Full report
Gross Margin Drivers
MICROSOFT CORP · 2026-10-28 · Importance 54 · Surprise 40 · In source text
Gross margin increased $8.9 billion, or 17%, to $62.559 billion in the first quarter of fiscal 2027. Cost of revenue increased $5.7 billion, or 24%, primarily with growth in Agents and Infra; that segment's cost of revenue rose 35% to $23.887 billion due to datacenter infrastructure investment. Microsoft Cloud gross margin percentage decreased to 66% as sales mix shifted toward Azure, partly offset by product-level margin improvements, primarily in Azure. Devices and Consumer gross margin was relatively unchanged.
Key facts
- Microsoft gross margin increased $8.9 billion, or 17%, in Q1 FY2027. source
- Microsoft Agents and Infra operating income increased $7.8 billion, or 24%; its operating income percentage decreased slightly as sales mix shift to Azure more than offset revenue growth, platform efficiency gains, and focused investments. source
- Microsoft Agents and Infra gross margin increased $8.9 billion, or 20%, in Q1 FY2027. source
- Microsoft cost of revenue increased $5.7 billion, or 24%, in Q1 FY2027, driven by Agents and Infra growth. source
- Microsoft Cloud gross margin percentage decreased to 66%, driven by sales mix shift to Azure, partly offset by product-level margin improvements primarily in Azure. source
Impact estimates
| metric | direction | stage | expected | basis |
|---|---|---|---|---|
| margin | positive | realized | — | Microsoft gross margin increased $8.9 billion, or 17%, in Q1 FY2027. |
| margin | negative | realized | — | Microsoft Agents and Infra operating income increased $7.8 billion, or 24%; its operating income percentage decreased slightly as sales… |