- Microsoft (NASDAQ:MSFT) reported US$77.7 billion in revenue, up 18 per cent year-over-year, with operating income rising 24 per cent and non-GAAP net income reaching US$30.8 billion.
- Microsoft Cloud revenue surged 26 per cent to US$49.1 billion, with Azure and other cloud services up 40 per cent, reinforcing the company’s leadership in enterprise cloud and AI transformation
- Microsoft returned US$10.7 billion to shareholders, while Productivity, Intelligent Cloud, and More Personal Computing segments all posted year-over-year growth, led by strong gains in Microsoft 365 and search advertising
- Microsoft stock (NASDAQ:MSFT) opened trading at US$530.48
Microsoft (NASDAQ:MSFT) reported robust financial results for the first quarter of fiscal year 2026, ended September 30, 2025, showcasing continued momentum in cloud services and AI-driven innovation.
This report was published just hours after Microsoft’s Azure service was hit with a major network outage.
The tech giant posted revenue of US$77.7 billion, marking an 18 per cent year-over-year increase (17 per cent in constant currency), up from US$65.6 billion in Q1 FY2025 and slightly ahead of Q4 FY2025’s US$76.4 billion. Operating income rose 24 per cent to US$38.0 billion, while net income on a GAAP basis reached US$27.7 billion, a 12 per cent increase. On a non-GAAP basis, net income was US$30.8 billion, up 22 per cent.
Diluted earnings per share (EPS) came in at US$3.72 GAAP (up 13 per cent) and US$4.13 non-GAAP (up 23 per cent). Non-GAAP results excluded the impact of investments in OpenAI.
Cloud continues to lead
Microsoft Cloud revenue surged to US$49.1 billion, a 26 per cent increase year-over-year, outpacing Q4 FY2025’s US$46.7 billion. Azure and other cloud services grew 40 per cent, reflecting strong demand across workloads. Commercial remaining performance obligation jumped 51 per cent to US$392 billion, signaling sustained enterprise commitment.
Segment highlights
- Productivity and Business Processes revenue was US$33.0 billion, up 17 per cent. Microsoft 365 Commercial cloud revenue rose 17 per cent, while Consumer cloud revenue jumped 26 per cent. LinkedIn and Dynamics 365 grew 10 per cent and 18 per cent, respectively.
- Intelligent Cloud revenue reached US$30.9 billion, up 28 per cent, driven by Azure’s 40 per cent growth.
- More Personal Computing revenue was US$13.8 billion, a modest 4 per cent increase. Xbox content and services revenue was relatively flat, up just 1 per cent, compared to a 13 per cent rise in Q4 FY2025 and a 61 per cent spike in Q1 FY2025 following the Activision acquisition. Search and news advertising revenue excluding traffic acquisition costs rose 16 per cent.
Shareholder returns
Microsoft returned US$10.7 billion to shareholders through dividends and share repurchases, up from US$9.4 billion in Q4 FY2025 and US$9.0 billion in Q1 FY2025.
Leadership insights
“Our planet-scale cloud and AI factory, together with Copilots across high value domains, is driving broad diffusion and real-world impact,” Satya Nadella, chairman and chief executive officer of Microsoft said in a news release. “It’s why we continue to increase our investments in AI across both capital and talent to meet the massive opportunity ahead.”
“We delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share,” Amy Hood, the company’s executive vice president and chief financial officer, added. “Continued strength in the Microsoft Cloud reflects the growing customer demand for our differentiated platform.”
Outlook
The results reflect Microsoft’s continued strength in cloud computing and its investments in AI. With Azure surpassing US$75 billion in annual revenue, up 34 per cent year-over-year, the company is well-positioned to capitalize on digital transformation trends across industries.
Xbox profit push – blood from a stone
This comes after news that Microsoft has been aggressively pushing its Xbox division to achieve a 30 per cent “accountability margin” (their term for profit margin) over the past two years, according to a recent Bloomberg report. This target is notably higher than the video game industry average, which typically ranges from 17 per cent to 22 per cent, and significantly above Xbox’s own recent margins, which have been between 10 per cent and 20 per cent, according to S&P Global Market Intelligence estimates. To meet this ambitious goal, the Xbox division has reportedly implemented cost-cutting measures, including cancelling projects, raising prices, and eliminating thousands of jobs. Given that Microsoft raised the price of its consoles twice this year, but also reported a US$113 million decrease in gaming revenue driven by a decline in Xbox hardware (which specifically decreased 29 per cent due to a decline in consoles sold), it is hard to be optimistic about that plan.
About Microsoft
Microsoft Corp. develops and supports software, services, devices, and solutions. The company’s segments include productivity and business processes, intelligent cloud, and more personal computing.
Microsoft stock (NASDAQ:MSFT) opened around 1 per cent lower at US$530.48 but has risen more than 28 per cent since the beginning of the year.
Join the discussion: Find out what the Bullboards are saying about Microsoft and check out Stockhouse’s stock forums and message boards.
Stockhouse does not provide investment advice or recommendations. All investment decisions should be made based on your own research and consultation with a registered investment professional. The issuer is solely responsible for the accuracy of the information contained herein. For full disclaimer information, please click here.
