Microsoft Third Quarter Fiscal Year 2026 Results

Key insights

6 takeaways

01
Microsoft reported total revenue of $82.9 billion for Q3 FY2026, an 18% year-over-year increase, with net income rising 23% to $31.8 billion.See it on page 7
02
AI-related revenue reached an annual run rate exceeding $37 billion, marking a 123% year-over-year increase.See it on page 6
03
Capital expenditures surged 49% to $31.9 billion, with approximately two-thirds of this investment allocated to GPU and CPU infrastructure to support AI and cloud demand.See it on page 5
04
The Intelligent Cloud segment grew 30%, driven by a 40% increase in Azure and other cloud services revenue.See it on page 10
05
Productivity and Business Processes revenue grew 17%, supported by Microsoft 365 Copilot adoption, which surpassed 20 million paid seats.See it on page 7
06
The More Personal Computing segment declined 1% as gains in search advertising were offset by underperformance in gaming and hardware device sales.See it on page 11

Summary

Microsoft’s third-quarter fiscal year 2026 results demonstrate strong financial growth driven primarily by significant expansion in cloud services and artificial intelligence infrastructure. Total revenue reached $82.9 billion, an 18% increase year-over-year, supported by a 29% surge in Microsoft Cloud revenue. Net income rose 23% to $31.8 billion, resulting in diluted earnings per share of $4.27. These results reflect a strategic focus on scaling AI capabilities, which now account for an annual revenue run rate exceeding $37 billion, representing a 123% increase.

The company’s performance across its three primary segments was varied. The Intelligent Cloud segment led growth with a 30% revenue increase, fueled by a 40% rise in Azure and other cloud services. Productivity and Business Processes grew 17%, bolstered by Microsoft 365 Commercial cloud and the adoption of M365 Copilot, which surpassed 20 million paid seats. Conversely, the More Personal Computing segment saw a 1% revenue decline, as growth in search advertising was offset by weaknesses in gaming and hardware device sales.

To sustain this momentum, capital expenditures rose 49% to $31.9 billion, with approximately two-thirds of these investments directed toward short-lived assets like GPUs and CPUs to meet surging AI and cloud demand. While operating income grew 20%, gross margin percentages experienced slight compression due to these heavy infrastructure investments and increased AI product usage. Despite the high capital intensity, the company maintained strong operational cash flow of $46.7 billion and returned $10.2 billion to shareholders through dividends and share repurchases. The results underscore a transition toward long-term AI monetization, supported by a 99% increase in commercial remaining performance obligations.