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
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.
Revenue
$82.89B
+18.30% YoY
EPS (Diluted)
$4.27
+23.41% YoY
Gross Margin
67.6%
-1.1 pts YoY
Operating Income
$38.4B
+19.99% YoY
Source: SEC XBRL
Microsoft (MSFT) reported Q3 FY2026 revenue of $82.89B, up 18.3% year over year. Operating margin was 46.3%, up 0.6 points from 45.7% a year earlier. Operating cash flow was $46.68B, up 26.0% year over year. MSFT's fiscal Q3 FY2026 corresponds to calendar Q1 2026.
Last 4 quarters: 4 beats
| Quarter | Actual EPS (USD) | Consensus (USD) | Result |
|---|---|---|---|
| Jun 2026 | 4.74 | 4.33 | Beat +9.5% |
| Mar 2026This filing | 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% |
Reported EPS of $4.27 versus the $4.14 analyst consensus — a +3.1% beat for Mar 2026.
Compiled by AI from 10-Q Item 2 of this filing
Microsoft Cloud revenue increased 29% to $54.5 billion in Q3 FY2026, with Azure and other cloud services revenue growing 40% driven by demand across all workloads. Commercial remaining performance obligation increased 99% year-over-year to $627 billion, reflecting a large backlog of future revenue.
Source: 10-Q Item 2 MD&A
Gross margin percentage decreased in Q3 FY2026 driven by continued investments in AI infrastructure and growing AI product usage, partially offset by efficiency gains across Microsoft Cloud. Microsoft Cloud gross margin percentage specifically declined to 66% for the quarter.
Source: 10-Q Item 2 MD&A
Net income and diluted EPS in Q3 FY2026 were negatively impacted by net losses from investments in OpenAI, reducing net income by $14 million, a much smaller impact than the $583 million (or $0.08 per share) drag seen in the prior-year quarter. Over the nine-month period, however, OpenAI investment gains added $4.5 billion to net income and $0.60 to diluted EPS.
Source: 10-Q Item 2 MD&A
Intelligent Cloud revenue grew 30% to $34.7 billion with operating income up 24% to $13.75 billion, while Productivity and Business Processes revenue grew 17% to $35.0 billion. More Personal Computing revenue declined 1% to $13.2 billion, hurt by a 33% drop in Xbox hardware revenue and a 2% decline in Windows OEM and Devices revenue.
Source: 10-Q Item 2 MD&A
Microsoft extended its long-term strategic partnership with OpenAI, originally established in 2019, in both October 2025 and April 2026. Microsoft continues to receive revenue-sharing payments and holds rights to OpenAI's intellectual property, including models and infrastructure, for integration into its products.
Source: 10-Q Item 2 MD&A
Compiled by AI from this SEC filing · 1 high, 4 medium, 0 low
Microsoft states that investments in cloud and AI infrastructure and devices will continue to increase operating costs and may decrease operating margins. This is already evidenced in Q3 FY2026 by a 47% increase in Intelligent Cloud cost of revenue and a gross margin percentage decline attributed directly to AI infrastructure investment.
Source: 10-Q Item 1A / Item 2 MD&A
The filing discloses a specific incident where a nation-state associated threat actor used a password spray attack beginning in late November 2023 to compromise a legacy test account, gaining unauthorized access to Microsoft email accounts and source code repositories. This incident has resulted in and may continue to cause reputational and customer relationship harm.
Source: 10-Q Item 1A Risk Factors
Microsoft faces competition from firms distributing open-source software and open AI models at little or no cost, as well as vertically-integrated competitors controlling both hardware and software, which could pressure pricing and margins. The company acknowledges that shifting toward vertically-integrated models itself may increase cost of revenue and reduce operating margins.
Source: 10-Q Item 1A Risk Factors
The company acknowledges uncertainty as to whether its cloud and AI strategies will continue to attract users or generate revenue sufficient to justify the scale of infrastructure investment. Failure to execute could mean revenue growth does not keep pace with the capital and development spending being deployed.
Source: 10-Q Item 1A Risk Factors
Microsoft's results include volatile mark-to-market gains and losses from its investment in OpenAI, which reduced Q3 FY2026 net income by only $14 million versus a $583 million reduction in the prior-year quarter, while nine-month results benefited from a $4.5 billion gain. This introduces earnings volatility tied to a strategic but non-operating investment.
Source: 10-Q Item 2 MD&A
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Revenue $B | 82.89 $B | 70.07 $B | +18.30% |
Cost of Revenue $B | 26.83 $B | 21.92 $B | +22.40% |
Gross Profit $B | 56.06 $B | 48.15 $B | +16.43% |
Operating Income $B | 38.40 $B | 32.00 $B | +19.99% |
Net Income $B | 31.78 $B | 25.82 $B | +23.06% |
EPS (Basic) $ | 4.28 $ | 3.47 $ | +23.34% |
EPS (Diluted) $ | 4.27 $ | 3.46 $ | +23.41% |
R&D Expense $B | 8.92 $B | 8.20 $B | +8.75% |
Answers draw on this SEC filing and the data on this page
Microsoft's FY2026 results showcased robust cloud and AI-driven revenue growth, but rising infrastructure costs and one-time investment gains underscored a year of both expansion and transition.
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.
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.
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