Azure Growth Accelerates to 40%
Azure and other cloud services revenue increased 40% year-over-year, driven by demand across all workloads, but Microsoft Cloud gross margin declined to 68% due to scaling AI infrastructure.
Source: 10-Q Item 2 MD&A
Computed from published fixed rules, not a model's judgement — though one input, the count of high-severity risks, comes from the AI analysis below.
Not investment advice and not a price target: it scores the quarter's fundamentals, not the stock. Full methodology →
AI Takeaway
Microsoft delivered strong Q1 FY2026 results with revenue rising 18% to $77.7B and operating income up 24% to $38.0B, driven by 40% growth in Azure and a 51% surge in commercial remaining performance obligation to $392B, though net income growth was tempered to 12% by $3.1B in net losses from its OpenAI investment.
Revenue
$77.67B
+18.43% YoY
EPS (Diluted)
$3.72
+12.73% YoY
Gross Margin
69.0%
-0.3 pts YoY
Operating Income
$37.96B
+24.25% YoY
Source: SEC XBRL
Microsoft (MSFT) reported Q1 FY2026 revenue of $77.67B, up 18.4% year over year. Operating margin was 48.9%, up 2.3 points from 46.6% a year earlier. Operating cash flow was $45.06B, up 31.8% year over year. MSFT's fiscal Q1 FY2026 corresponds to calendar Q3 2025.
Last 4 quarters: 4 beats
| Quarter | Actual EPS (USD) | Consensus (USD) | Result |
|---|---|---|---|
| Jun 2026 | 4.74 | 4.33 | Beat +9.5% |
| Mar 2026 | 4.27 | 4.14 | Beat +3.1% |
| Dec 2025 | 4.14 | 4.03 | Beat +2.6% |
| Sep 2025 | 4.13 | 3.74 | Beat +10.5% |
3 reported segments · SEC XBRL
Segment revenue totals $77.67B, which is the $77.67B of consolidated revenue on the income statement. The profit column adds up to the consolidated figure as well.
Profit above is reported as operating income, the measure MSFT itself discloses in this filing. Each company chooses its own measure here, so these margins are not comparable with another company's.
Compiled by AI from 10-Q Item 2 of this filing
Azure and other cloud services revenue increased 40% year-over-year, driven by demand across all workloads, but Microsoft Cloud gross margin declined to 68% due to scaling AI infrastructure.
Source: 10-Q Item 2 MD&A
Net income included $3.1 billion in net losses from the equity method investment in OpenAI, reducing diluted EPS by $0.41, compared to a $523 million loss a year ago.
Source: 10-Q Item 2 MD&A
Commercial remaining performance obligation surged 51% to $392 billion, signaling a strong pipeline of contracted but not yet recognized revenue, primarily from multi-year cloud commitments.
Source: 10-Q Item 2 MD&A
Operating expenses rose only 5%, with R&D up 8% to $8.1B focused on cloud and AI engineering, while sales and marketing expenses were flat year-over-year.
Source: 10-Q Item 2 MD&A
The IRS is seeking an additional $28.9 billion in taxes plus penalties for tax years 2004-2013 related to transfer pricing; Microsoft believes its reserves are adequate and is contesting the claims.
Source: 10-Q Item 2 MD&A
Compiled by AI from 10-Q Item 1A of this filing · 4 high, 1 medium, 0 low
Significant ongoing investment in AI and cloud infrastructure is required to remain competitive, which may pressure operating margins. Success depends on execution across multiple fronts, including product development, reliability, and platform compatibility.
Source: 10-Q Item 1A Risk Factors
Microsoft faces persistent cybersecurity threats; a previously disclosed nation-state attack compromised email accounts and source code. Such incidents could damage reputation, erode customer trust, and lead to regulatory scrutiny.
Source: 10-Q Item 1A Risk Factors
Large acquisitions like Activision Blizzard and the complex partnership with OpenAI carry integration, financial, and control risks. OpenAI investment generated $3.1B in net losses this quarter, and the partnership's long-term success remains uncertain.
Source: 10-Q Item 1A Risk Factors
Competition from vertically-integrated rivals and open-source alternatives could erode Microsoft's market share and pricing power. Platform-based ecosystems with large installed bases pose a challenge to Windows and other products.
Source: 10-Q Item 1A Risk Factors
Growing storage of personal data increases exposure to data breaches and misuse. Government demands for customer data could complicate compliance and harm brand perception, especially in cloud services.
Source: 10-Q Item 1A Risk Factors
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Revenue $B | 77.67 $B | 65.58 $B | +18.43% |
Cost of Revenue $B | 24.04 $B | 20.1 $B | +19.62% |
Gross Profit $B | 53.63 $B | 45.49 $B | +17.90% |
Operating Income $B | 37.96 $B | 30.55 $B | +24.25% |
Net Income $B | 27.75 $B | 24.67 $B | +12.49% |
EPS (Basic) $ | 3.73 $ | 3.32 $ | +12.35% |
EPS (Diluted) $ | 3.72 $ | 3.30 $ | +12.73% |
R&D Expense $B | 8.15 $B | 7.54 $B | +7.98% |
Answers draw on this SEC filing and the data on this page
In Q3 FY2026, Microsoft delivered strong 18% revenue growth to $82.9 billion and 23% net income growth to $31.8 billion, propelled by 40% Azure growth and a 99% surge in Commercial Remaining Performance Obligation to $627 billion, even as gross margin declined 1.1 percentage points due to continued AI infrastructure investment.
Microsoft achieved $331.84B in revenue (up 17.8% YoY) and $133.75B in net income in FY2026, driven by 41% growth in Azure and strong Microsoft Cloud momentum despite compressed gross margins from AI infrastructure investments.
In Q2 FY2026, Microsoft reported strong financial performance with a 16.7% increase in revenue and a 59.5% rise in net income, driven by robust operating income growth and effective cost management.
Other companies in Systems Software