10-QPeriod: Q1 FY2026

MICROSOFT CORP Quarterly Report for Q1 Ended Sep 30, 2025

Filed October 29, 2025For Securities:MSFT

Summary

Microsoft Corporation (MSFT) reported strong financial results for the quarter ending September 29, 2025, with total revenue increasing by 18% year-over-year to $77.7 billion. This growth was primarily driven by significant increases in both the Intelligent Cloud and Productivity and Business Processes segments. The company highlighted robust performance in Azure and other cloud services, which saw revenue grow by 40%, and continued strength in Microsoft 365 Commercial cloud, which increased revenue by 17%. Diluted earnings per share rose 13% to $3.72, demonstrating the company's ability to translate revenue growth into profitability. Key financial indicators underscore Microsoft's continued expansion in its cloud offerings, with Microsoft Cloud revenue up 26% to $49.1 billion. The company also reported a substantial commercial remaining performance obligation of $392 billion, indicating strong future revenue visibility. While investments in AI infrastructure are impacting gross margin percentages, the company remains focused on innovation and strategic growth, as evidenced by the extended partnership with OpenAI. Despite some headwinds in hardware segments like Xbox and Devices, the overall financial health and strategic direction of Microsoft appear robust.

Financial Highlights

54 data points
Beta

Revenue

$77.67B

69.0% Gross Margin

Net Income

$27.75B

35.7% Net Margin

EPS (Diluted)

$3.72

Total Assets

$636.35B

Cash & Equivalents

$28.85B

Free Cash Flow

$25.66B

Financial Statements
Beta
Revenue$77.67B
Cost of Revenue$24.04B
Gross Profit$53.63B
R&D Expenses$8.15B
Operating Expenses$15.67B
Operating Income$37.96B
Net Income$27.75B
EPS (Basic)$3.73
EPS (Diluted)$3.72
Shares Outstanding (Basic)7.43B
Shares Outstanding (Diluted)7.47B

Key Highlights

  • 1Total revenue grew 18% year-over-year to $77.7 billion.
  • 2Intelligent Cloud segment revenue increased by 28%, driven by a 40% surge in Azure and other cloud services.
  • 3Productivity and Business Processes segment revenue rose 17%, bolstered by strong Microsoft 365 Commercial cloud performance.
  • 4Microsoft Cloud revenue saw a substantial increase of 26% to $49.1 billion.
  • 5Diluted earnings per share (EPS) increased by 13% to $3.72.
  • 6Commercial remaining performance obligation reached $392 billion, indicating strong future revenue visibility.
  • 7The company reported net losses from its investment in OpenAI totaling $4.1 billion for the quarter.

Frequently Asked Questions

Microsoft's revenue growth was primarily driven by its cloud offerings. The Intelligent Cloud segment saw a significant increase, largely due to Azure and other cloud services growing by 40%. The Productivity and Business Processes segment also contributed substantially, with Microsoft 365 Commercial cloud revenue up 17% and Microsoft 365 Consumer cloud revenue increasing by 28%.

Microsoft's investment in OpenAI resulted in net losses of $4.1 billion for the quarter, which negatively impacted net income and diluted EPS. While this affects reported GAAP figures, the company also reports adjusted non-GAAP figures that exclude these losses, showing adjusted net income up 22% and adjusted diluted EPS up 23%.

Microsoft reported a commercial remaining performance obligation of $392 billion as of September 30, 2025. The company expects to recognize approximately 40% of this amount over the next 12 months, indicating strong visibility into future revenue streams, particularly from its commercial cloud contracts.

The filing mentions ongoing investments in AI infrastructure which are impacting gross margin percentages. Additionally, Microsoft faces intense competition across all its markets, evolving technological landscapes, cybersecurity threats, and potential regulatory challenges, particularly concerning AI and data privacy. The company is also undergoing an IRS audit for transfer pricing issues, seeking substantial additional tax payments, although Microsoft believes its allowances are adequate.