Microsoft — Financial Results
Revenue and Profit Grew Strongly Across Almost Every Dimension
| Metric | FY2026 | FY2025 | Change |
|---|---|---|---|
| Revenue | $331.8B | $281.7B | +18% |
| Gross margin | $225.5B | $193.9B | +16% |
| Operating income | $155.2B | $128.5B | +21% |
| Net income | $133.7B | $101.8B | +31% |
| Diluted EPS | $17.95 | $13.64 | +32% |
Microsoft grew revenue by $50 billion in a single year, with operating income rising even faster than revenue — a sign that the business is scaling efficiently. Net income jumped 31%, though a notable portion of that came from investment gains on OpenAI rather than core operations (more on that below).
Azure Is the Star, Growing 41% and Pulling the Entire Cloud Business Forward
Azure and other cloud services revenue grew 41% year-over-year, driving the Intelligent Cloud segment to $137.8 billion in revenue, up 30%. The flip side is that costs in this segment rose 44% as Microsoft pours money into AI infrastructure to meet demand. Gross margins in Intelligent Cloud dipped as a result, but operating income still grew 28% to $57 billion — the business is expanding fast and profitably, just with heavy upfront investment.
Microsoft Cloud Revenue Hit $214 Billion, with a $678 Billion Backlog
Microsoft Cloud — the combined cloud business across all segments — grew 27% to $214.4 billion. Even more striking is the commercial remaining performance obligation (essentially future contracted revenue not yet recognized), which surged 84% to $678 billion. This figure represents sales already locked in that will flow through as revenue in coming years, and an 84% jump is an unusually strong signal of accelerating business momentum.
OpenAI Investment Swung Dramatically and Inflated Reported Net Income
| FY2026 | FY2025 | |
|---|---|---|
| OpenAI net gains/(losses), after tax | +$5.0B | -$3.6B |
| Adjusted net income (ex-OpenAI) | $128.8B | $105.5B |
| Adjusted diluted EPS | $17.28 | $14.13 |
The headline net income number of $133.7 billion includes a $5 billion after-tax gain from OpenAI, largely due to a dilution gain from OpenAI's recapitalization (when new investors came in at a higher valuation, Microsoft's stake was worth more). The prior year included a $3.6 billion loss. Stripping out OpenAI, adjusted earnings per share grew a still-healthy 22%.
Capital Spending Is Surging to Feed the AI Infrastructure Build-Out
Cash used in investing jumped $66.9 billion to $139.5 billion in FY2026, driven primarily by a $51.4 billion increase in property and equipment additions — datacenters, servers, and AI hardware. Total contractual obligations now stand at $743.8 billion, including $443.5 billion in operating and finance leases. Microsoft is making enormous long-term bets on AI capacity; this spending is compressing cloud gross margins today in exchange for capacity to serve future demand.
Xbox Is Shrinking and Being Written Down
The More Personal Computing segment was the only one to shrink, falling 1% to $54.1 billion. Xbox was the main drag: total Xbox revenue fell 7%, with hardware down 29% and content and services down 5%. Microsoft also recorded impairment charges (write-downs acknowledging assets are worth less than originally booked) in the Xbox business. Search advertising partially offset the decline, growing 12% excluding traffic costs.