01—Abstract
Summary
Summary of the 10-Q filed October 29, 2025. Cited figures are marked; the original filing is the authoritative source.
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 billiona.
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 $3.72b, 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 billionc. 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.
02—Key points
Key Highlights
- Total revenue grew 18% year-over-year to $77.7 billion.
- Intelligent Cloud segment revenue increased by 28%, driven by a 40% surge in Azure and other cloud services.
- Productivity and Business Processes segment revenue rose 17%, bolstered by strong Microsoft 365 Commercial cloud performance.
- Microsoft Cloud revenue saw a substantial increase of 26% to $49.1 billion.
- Diluted earnings per share (EPS) increased by 13% to $3.72.
- Commercial remaining performance obligation reached $392 billion, indicating strong future revenue visibility.
- The company reported net losses from its investment in OpenAI totaling $4.1 billion for the quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2026, Microsoft Corp kept $0.36.
- Revenue$77.67B100.0%
- Cost of revenue−$24.04B31.0%
- Gross profit$53.63B69.0%
- Operating costs−$15.67B20.2%
- Operating income$37.96B48.9%
- Interest, other & tax−$10.21B13.2%
- Net income$27.75B35.7%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2026filed October 29, 2025Financial Statements
Q1 FY2026 against Q1 FY2025
| Line item | Q1 FY2026Q1 FY2025 | Change |
|---|---|---|
| Revenue | $77.67B$65.58B | +18.4% |
| Cost of Revenue | $24.04B$20.10B | +19.6% |
| Gross Profit | $53.63B$45.49B | +17.9% |
| R&D Expenses | $8.15B$7.54B | +8.0% |
| Operating Expenses | $15.67B$14.93B | +4.9% |
| Operating Income | $37.96B$30.55B | +24.3% |
| Net Income | $27.75B$24.67B | +12.5% |
| EPS (Basic) | $3.73$3.32 | +12.3% |
| EPS (Diluted) | $3.72$3.30 | +12.7% |
| Shares Outstanding (Basic) | 7.43B7.43B | 0.0% |
| Shares Outstanding (Diluted) | 7.47B7.47B | −0.1% |
05—Questions
Frequently Asked Questions
What were the main drivers of Microsoft's revenue growth this quarter?
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%.
How is the investment in OpenAI impacting Microsoft's financials?
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%.
What is the outlook for future revenue based on remaining performance obligations?
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.
Are there any significant concerns or risks highlighted in the filing?
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.
06—Continue