Summary
Full summaryThe Print
positiveRevenue increased 18% to $331.8B, with net income of $133.7B and diluted EPS of $17.95, driven by 27% growth in Microsoft Cloud revenue to $214.4B.
Revenue growth accelerated to 18% from 15% in the prior year, with operating income up 21%, while capital expenditures nearly doubled to $115.9B to support AI and cloud infrastructure.
- Microsoft Cloud revenue increased 27% to $214.4B, with Azure and other cloud services revenue growing 41%.
- Net income rose 31% to $133.7B, including a $5.0B net gain from OpenAI investments; adjusted net income (non-GAAP) increased 22% to $128.8B.
- Commercial remaining performance obligation increased 84% to $678B, signaling strong future revenue visibility.
Results That Matter
| Metric | Current Period | Prior Period | Change | Investor Takeaway |
|---|---|---|---|---|
Revenue | $331.8B | $281.7B | +17.8% | Revenue increased driven by growth in Microsoft Cloud, with Intelligent Cloud revenue up 30% and Productivity and Business Processes up 16%. |
Operating income | $155.2B | $128.5B | +20.8% | Operating income increased driven by growth in Productivity and Business Processes and Intelligent Cloud. |
Operating margin | 46.8% | 45.6% | +1.2 ppts | Gross margin percentage decreased slightly due to AI infrastructure investments, but operating margin expanded as operating expenses grew slower than revenue. |
Diluted EPS | $18.0 | $13.6 | +31.6% | Diluted EPS increased 32%, including a $0.67 positive impact from net gains on OpenAI investments; adjusted diluted EPS (non-GAAP) increased 22% to $17.28. |
Earnings Quality & Cash Conversion
Reported net income of $133.7B includes a $5.0B after-tax net gain from OpenAI investments, primarily a dilution gain from the OpenAI Recapitalization. Excluding this, adjusted net income was $128.8B, up 22% YoY. Operating cash flow was $182.9B, significantly exceeding net income, driven by non-cash charges and working capital changes.
Operating cash flow was 1.4x net income (cash conversion); free cash flow of $67.0B.
Value Drivers & Capital Allocation
Capital returned — dividends paid $26.4B (prior $24.1B), share repurchases $22.3B (prior $18.4B); capital expenditures $115.9B (prior $64.6B).
Capital allocation remains heavily weighted toward AI and cloud infrastructure, with capex nearly doubling to $115.9B. Shareholder returns increased, with dividends up 10% and share repurchases up 21%, funded by strong operating cash flow. The company maintains a robust balance sheet with $76.8B in cash and short-term investments and a net cash position.
Return on equity was 30.2% (prior 29.6%); return on assets 17.6% (prior 16.5%).
Forward Signals
Not given—Microsoft does not provide quantitative guidance in its 10-K filing.
Known trends
- Management expects continued significant capital expenditures to support cloud and AI infrastructure growth, which may pressure margins.
- The commercial remaining performance obligation of $678B, up 84%, indicates strong future revenue, but realization depends on customer adoption and execution.
Risks
No risk factors found
The AI couldn't extract this section from the filing. The company probably didn't report it in a standard format.
Segments
| Segment | Revenue | Operating Income | Change | Commentary |
|---|---|---|---|---|
| Productivity and Business Processes | $140.0B | $83.9B | +15.9% | 42% of segment revenue, 60% operating margin — Revenue growth driven by Microsoft 365 Commercial cloud (up 17%) and LinkedIn (up 11%), with operating income up 20% on efficiency gains. |
| Intelligent Cloud | $137.8B | $57.0B | +29.7% | 42% of segment revenue, 41% operating margin — Revenue growth driven by Azure and other cloud services (up 41%), with operating income up 28% despite margin pressure from AI infrastructure investments. |
| More Personal Computing | $54.1B | $14.4B | -1.1% | 16% of segment revenue, 27% operating margin — Revenue slightly down (1%) as declines in XBOX (down 7%) were mostly offset by growth in Search advertising (up 9%); operating income up 2% on favorable mix. |
Balance Sheet & Liquidity
Leverage: Total debt of $40.3B (current portion $9.2B + long-term $31.1B) against cash and short-term investments of $76.8B, resulting in a net cash position. Debt-to-equity ratio is low at 0.09.
Liquidity: Cash and short-term investments of $76.8B, plus $182.9B in operating cash flow, provide ample liquidity for operations, capex, and shareholder returns.
Cash flow: Cash flow — operating $182.9B, investing $-139.5B, financing $-52.5B.
Working capital: Current assets $207.7B vs. current liabilities $168.8B (current ratio 1.23x). A year earlier: $191.1B vs. $141.2B (1.35x).
Maturities & covenants
- As of June 30, 2026, $9.25B of long-term debt matures within one year, with the remaining $36.9B due thereafter.
- No material covenant concerns; long-term unsecured debt rated AAA.
Notable Footnotes
| Item | Impact |
|---|---|
| OpenAI Investment and Revenue | Microsoft recorded $24.1B in revenue from commercial arrangements with OpenAI and a $6.5B net gain from its equity method investment, primarily from a dilution gain upon OpenAI's recapitalization. |
| Activision Blizzard Acquisition | The acquisition was completed in October 2023 for $75.4B, with $51.0B allocated to goodwill. Pro forma revenue for fiscal 2024 was $247.4B. |
| Income Taxes – IRS Audit | The IRS is seeking an additional $28.9B plus penalties and interest for tax years 2004-2013 related to transfer pricing. Microsoft disagrees and will contest. |
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AI-generated. Informational only, not investment advice. May be incomplete or contain errors. The authoritative source is always the original SEC filing.