MSFT FY1Q26: Mid-Training Driving Non-AI Growth, Copilot Studio Becoming the Next PLTR

Since we initiated coverage on MSFT, we have repeatedly articulated our views on Copilot, Copilot Studio, Azure OpenAI API, and how to disaggregate Azure AI metrics.

We were initially bearish on MSFT, as we observed slow Copilot adoption and Azure’s inability to provide sufficient GPU rental services due to OpenAI consuming too much GPU capacity.

However, in our FY3Q25 MSFT Preview—the quarter of peak fear—we turned significantly bullish. We observed Azure beginning to deploy more GPUs, with GPU rental business showing clear inflection in 1Q25. Additionally, we saw TikTok placing a massive GPU rental order with Azure. Since our 1Q25 MSFT Preview, we have maintained our bullish stance on MSFT.

In our FY1Q26 MSFT Preview, we are pleased to discover new MSFT developments that make us even more bullish:

• Copilot Studio is progressing rapidly with a growth trajectory very similar to PLTR, and we are seeing customers building customer-facing agents using Copilot Studio for the first time.

• Mid-training is not only making Azure GPUs more scarce but is now also creating scarcity in Azure CPU and storage products.

• OpenAI’s contribution to Azure is actually accelerating significantly, not decelerating.

• We observed Azure significantly increasing rack orders in Taiwan today, suggesting Satya is considering a more aggressive AI capex posture. When a CEO known for prudence begins adopting a more aggressive capital expenditure strategy, it typically signals greater optimism about future growth prospects.

Ahead of the Microsoft earnings report, we conducted in-depth interviews with nine experts, providing updates on several topics we consider critical: