01—Abstract
Summary
Summary of the 8-K filed January 28, 2026. Cited figures are marked; the original filing is the authoritative source.
Microsoft reported fiscal Q2 2026 results (quarter ended December 31, 2025) that beat expectations on the top and bottom lines, led by its cloud and AI franchises.
Revenue rose 17% year over year to $81.3 billiona (15% in constant currency), and operating income rose 21% to $38.3 billion. Microsoft Cloud revenue crossed $50 billion, reaching $51.5 billion (up 26%), and Azure and other cloud services grew 39%. Commercial remaining performance obligation (RPO) more than doubled, up 110% to $625 billion, which points to substantial contracted future demand.
GAAP net income of $38.5 billionb (diluted EPS $5.16) rose 60%, but this figure is inflated by a $7.6 billion pre-tax-equivalent net gain from OpenAI investments, worth $1.02 per share. Excluding that gain, non-GAAP net income was $30.9 billion (up 23%) and non-GAAP diluted EPS was $4.14 (up 24%). Investors should anchor on the non-GAAP figures for underlying operating performance, since the GAAP line is distorted by mark-to-market swings in the OpenAI stake.
The company also returned $12.7 billionc to shareholders via dividends and buybacks, up 32% year over year. The main watch item is capital intensity. Quarterly additions to property and equipment reached $29.9 billion, up from $15.8 billion a year earlier, and property and equipment net rose to $261 billion from $205 billion at June 30, 2025.
Free cash flow therefore compressed meaningfully even as operating cash flow grew. The filing contains no forward guidance; management directed investors to the earnings call for outlook.
02—Key points
Key Highlights
- Revenue of $81.3B, up 17% (15% constant currency), with operating income of $38.3B, up 21%.
- Microsoft Cloud revenue of $51.5B, up 26%; Azure and other cloud services grew 39%.
- Commercial remaining performance obligation surged 110% to $625B, signaling strong contracted demand.
- GAAP diluted EPS of $5.16 (up 60%) includes a $1.02 benefit from OpenAI investment gains; non-GAAP EPS was $4.14 (up 24%).
- Capital expenditures (additions to property and equipment) were $29.9B in the quarter, nearly double the $15.8B a year earlier, and PP&E net reached $261B.
- Segment results: Productivity and Business Processes revenue up 16% to $34.1B; Intelligent Cloud up 29% to $32.9B; More Personal Computing down 3% to $14.3B.
- Shareholder returns of $12.7B in the quarter (dividends and buybacks), up 32% year over year.
03—Questions
Frequently Asked Questions
Why is GAAP net income up 60% while non-GAAP net income is up only 23%?
The gap comes from Microsoft's OpenAI investment. In the quarter, the company recorded net gains of $7.6 billion from OpenAI, which lifted GAAP net income and EPS by $1.02 per share. In the prior-year quarter, the company had a $939 million loss from the same investment. Non-GAAP figures strip out these swings to show operating performance more consistently.
How strong is the cloud demand pipeline?
Very strong. Commercial remaining performance obligation, which represents contracted future revenue not yet recognized, rose 110% to $625 billion. This suggests a large backlog of committed customer spending, though it does not guarantee timing or margin of conversion into revenue.
Is Microsoft spending too much on AI infrastructure?
Spending is rising sharply. Additions to property and equipment reached $29.9 billion in the quarter versus $15.8 billion a year earlier, and six-month capex totaled $49.3 billion. Net PP&E grew to $261 billion from $205 billion at June 30, 2025. Management argues this capacity supports strong Azure growth and backlog, but the spending pressures free cash flow and raises questions about returns on the investment.
Did the filing provide forward guidance for the next quarter?
No. The press release states that Microsoft would provide forward-looking guidance on its earnings conference call and webcast, not in the written filing. Investors should review the call transcript for outlook details.
How are shareholder returns trending?
Shareholder returns increased. Microsoft returned $12.7 billion in the quarter through dividends and share repurchases, up 32% from the prior-year quarter. Quarterly buybacks were $7.4 billion and dividends paid were $6.8 billion, and diluted weighted average shares were roughly flat at about 7.46 billion.
04—Continue