Microsoft’s search and advertising revenue rose 12% in its fiscal first quarter of 2027, excluding traffic acquisition costs, as the company reported a strong start to its financial year. Total revenue reached $92.3 billion, up 19% year on year, while net income climbed 32% on a GAAP basis to $36.6 billion, with search contributing to a broad-based performance across the business.
Search growth accelerates
The 12% rise in search and advertising revenue, excluding traffic acquisition costs, is two percentage points higher than the previous quarter’s 10% growth. That acceleration is notable because the comparison is made on the same ex-TAC basis, which strips out the costs Microsoft pays to acquire traffic, giving a cleaner view of the underlying business.
Search sits within Microsoft’s More Personal Computing division, alongside Windows, devices and gaming. The division’s results are often overshadowed by the company’s cloud business, but a strengthening search line shows that Microsoft’s consumer and advertiser-facing products are still moving in the right direction.
The improvement comes at a time when search itself is changing quickly, with AI answers and chatbots altering how people look for information. In that environment, holding and growing advertiser spending is not automatic, and Microsoft’s result suggests its search business is adapting rather than simply defending an older model of results pages.
A strong quarter overall
The wider earnings picture helps explain why the search result matters. Revenue of $92.3 billion and net income of $36.6 billion point to a company growing at scale, not just in one segment. Search advertising may be a smaller line than cloud, but its improvement adds to a quarter in which most parts of the business pulled their weight.
The same earnings call produced several distinct stories, and our separate coverage looks at them from different angles. Readers interested in the cloud performance can see how Azure beat expectations in the quarter, while the scale of Microsoft’s AI investment is covered in the $10 billion OpenAI revenue quarter.
For advertisers, the ex-TAC figure is the one that matters most, because it reflects the revenue Microsoft keeps after paying for traffic. A rise on that basis points to genuine demand for its advertising inventory, rather than growth flattered by higher traffic costs passing through the accounts.
Satya Nadella framed the results as evidence of Microsoft’s strategy working across its stack. He said: “We are delivering greater capability, choice, control, and cost efficiency for customers across our entire stack,” and said Microsoft, by helping organisations build and own their intelligence and earning trust through agent safety and security, is translating innovation into growing adoption and real-world impact.
Why It Matters
Search advertising is a useful barometer for Microsoft’s position against its rivals. Growth here suggests advertisers continue to spend on its platforms and users continue to search there, even as AI chatbots and new search experiences reshape how people find information. A 12% rise, accelerating from 10%, is a sign of resilience rather than retreat.
The question for the coming quarters is whether that momentum can be sustained. Search growth of this kind depends on both user numbers and advertiser confidence, and either can shift quickly if rival products gain ground or marketing budgets tighten. For now, though, the direction of travel is upward, and the pace has quickened.
The result also fits the agent theme running through Microsoft’s current strategy. Nadella’s emphasis on agent safety and security connects directly to the contest over agent adoption, where trust may prove as important as capability. If organisations are to hand more work to AI agents, they need to believe those agents are safe, controllable and accountable.
Background
Microsoft reports search and advertising revenue excluding traffic acquisition costs to show the performance of the business after the payments made to secure traffic. On that basis, growth has now picked up from 10% last quarter to 12% in fiscal Q1 2027.
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