Microsoft on pricing: Q1 FY2027 earnings call, 28 Oct 2026

Microsoft's most recent earnings call was for fiscal Q1 2027 (the quarter to September 2026), held on 28 October 2026 1. Pricing came up in five places. The main message: AI token prices helped Azure this quarter, revenue per user is now the main growth driver in Microsoft 365, and the business model is moving from per-seat subscriptions to seats plus consumption.

1. AI token pricing lifted Azure, but it is variable

• Azure revenue grew 48%. CFO Amy Hood said Foundry revenue more than tripled year over year, helped by GPU efficiency gains and by "higher revenue per token that we benefited from in the quarter" 1.
• In Q&A she said: "We had higher token pricing than we expected in the quarter," because high-quality models that Microsoft can serve at good margins sold well 1.
• She also warned that "there's also some unknown on some token pricing through the quarter, that stuff can change." ARPU changes from model mix are one of the factors she said can make Azure growth vary from quarter to quarter 1.
• Q2 FY2027 guidance is Azure growth of 49% to 50% in constant currency 1.

2. Microsoft 365: growth now comes mainly from price per user (ARPU)

• M365 Commercial Cloud revenue grew 17% reported (18% adjusted for a prior-year one-off). Growth came from both ARPU and seats, and ARPU growth was led by premium seat offerings: M365 Copilot, E5 and E7. Hood said E7 "has already reached millions of paid seats" 1.
• Paid commercial seats grew only 5%, partly because of weaker sales of E3 and stand-alone SKUs 1.
• For Q2 FY2027, Microsoft expects M365 Commercial Cloud growth of about 19% in constant currency, "driven primarily by ARPU with additional contribution from seats" 1.

3. From per-seat to seat plus consumption

• CEO Satya Nadella said: "Our business model is expanding from per seat subscriptions to include consumption, expanding our TAM and ARPU." IT typically funds the subscription. Business units fund consumption, "with spending tied directly to the value these agents deliver" 1.
• Copilot customers that actively consume credits through usage-based billing grew more than 75% in the quarter. On GitHub, credit consumption from agentic features more than doubled after usage-based billing went into effect 1.
• Asked whether consumption in core M365 would grow as fast as it did in GitHub, Nadella said coding is faster because developers already pay as they go. Microsoft does not want customers "to overbuy one thing and then feel like they're token maxing." Hood added that the move "will be a slower move outside of coding" 1.
• Microsoft did not give an updated Copilot seat number this quarter 1.

4. Cheaper models as a price lever for customers

• Nadella said the goal for Microsoft's own MAI models is to match leading models within 3 to 6 months of release at a fraction of the training cost, "thereby allowing us to transfer those cost benefits to customers" 1.
• GitHub Copilot Fusion, which routes each task across models, delivers frontier-level quality "up to 40% faster and at up to 77% lower cost," according to the prepared remarks 1.
• On large AI capacity deals, Nadella said: "As long as the pricing is right, we may sell them some. If not, we will be patient about building the breadth business" 1.

5. Consumer price increase is lapping

• M365 Consumer Cloud revenue grew 17%, down from the prior quarter, "as we begin to lap the benefit from the price increase in the prior year." Q2 FY2027 growth is guided to the low teens for the same reason 1.

Context: rising hardware costs

Microsoft did not announce new list-price changes on the call. On the cost side, Hood said roughly three quarters of the $45.2 billion of Q1 capital expenditure went to short-lived assets, "including higher memory and storage costs." Microsoft Cloud gross margin fell to 66% and is guided to about 65% in Q2, mainly because of the sales mix shift to Azure 1.