Expectations were high going into Microsoft's (NASDAQ:MSFT) earnings report. The company has stubbornly clung to its $1 trillion market cap, a watermark it achieved earlier this year. Microsoft has consistently gained market share in the competitive cloud computing arena, which has helped drive its stock up nearly 40% in 2019.

Microsoft once again cited its cloud business as a significant contributor to its success this quarter. For the fiscal 2020 first quarter (which ended Sept. 30), the tech giant reported revenue of $33.1 billion, up 14% year over year, sailing past the high end of management's guidance, which topped out at $32.4 billion. The results also surpassed analysts' consensus estimates of $32.4 billion. Operating income grew by 27% to $12.7 billion. This resulted in diluted earnings per share of $1.38, which climbed 21%, easily surpassing expectations of $1.24.

The Microsoft logo outside the company campus.

Image source: Microsoft.

A beat in every major segment

Microsoft delivered growth that exceeded its guidance in each of its major business segments, positioning the company for the blowout quarter.

Productivity and business processes produced revenue of $11.1 billion, up 13% year over year and 15% in constant currency. Within the segment, Office commercial products and cloud services increased 13% year over year as Office 365 commercial revenue climbed 25%. LinkedIn continued its impressive growth, with revenue that grew 25% compared with the prior-year quarter, again reaching record levels of engagement as sessions grew by 22%. Dynamics revenue increased 14%, driven by Dynamics 365, which grew 41% year over year.

Intelligent cloud revenue again delivered the most dramatic segment growth, to $10.8 billion, up 27% year over year and 29% in constant currency. This was driven higher by on-premises server products, and cloud services revenue grew 30% year over year, with Azure cloud revenue growing by 59%. Enterprise services revenue grew a more muted 7% year over year.

The More Personal Computing segment produced more modest growth, to $11.1 billion, an increase of 4% year over year and 5% in constant currency. The highlight was performance by Windows OEM Pro, which grew 19% compared to the prior-year quarter. There was healthy demand for Windows Commercial products and cloud services, which grew by 26% year over year or 29% in constant currency. Gaming revenue disappointed, falling 7%, the result of slower console sales.

"The world's leading companies are choosing our cloud to build their digital capability," said Satya Nadella, chief executive officer of Microsoft. "We are accelerating our innovation across the entire tech stack to deliver new value for customers and investing in large and growing markets with expansive opportunity."

I've looked at clouds from both sides now

It's important to note that Azure -- Microsoft's cloud business -- is by all accounts growing faster than Amazon.com's (NASDAQ:AMZN) Amazon Web Services (AWS). While Microsoft doesn't provide a corresponding dollar amount, in each of the previous four quarters, it has reported Azure's growth rate, which in each case exceeds the reported growth of AWS. This likely indicates that Microsoft's cloud business is taking market share at Amazon's expense. For the Jun. 2019 quarter, as an example, Microsoft said Azure grew 64% year over year, while Amazon said AWS grew by 37%. Amazon has yet to report its earnings for the September quarter, but the comparisons will probably play out the same way.

There's little doubt that AWS remains the industry leader, while Azure is growing faster, albeit from a smaller base.

What's ahead?

Microsoft is guiding for fiscal second-quarter revenue in a range of $35.15 billion and $35.95 billion, which would represent year-over-year growth of between 8.1% and 10.5%. To put that into the context of Wall Street sentiment, analysts are calling for revenue of $36.02 billion and earnings per share of $1.27.

Given that Microsoft has underpromised and overdelivered on its guidance for several quarters running, it's easy to see why analysts' expectations are slightly above the high end of management's forecast.

If the company continues to stick to its game plan, offering cloud computing services to its massive installed base of enterprise customers and integrating its existing products, there's no reason to believe that Microsoft won't continue its consistently strong growth from here.