Microsoft Corp (MSFT) 10-Q 2026: AI Summary

Summary

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The Print

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Microsoft reported Q3 FY2026 revenue of $82.9B (up 18% YoY) and net income of $31.8B (up 23% YoY), with diluted EPS of $4.27, as Microsoft Cloud revenue increased 29% to $54.5B.

Revenue increased $12.8B or 18% driven by growth in Microsoft Cloud. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue decreased with lower hardware sales across Devices and Gaming, offset in part by growth in Search advertising.

Total revenue rose 18% YoY to $82.9B, driven by Microsoft Cloud revenue growth of 29% to $54.5B.
Net income increased 23% YoY to $31.8B and diluted EPS rose 23% to $4.27.
Commercial remaining performance obligation increased 99% to $627B.
Operating cash flow was $46.7B for the quarter, with capital expenditures of $30.9B.

Results That Matter

Total revenue
Current period
$82.9B
Prior period
$70.1B
Change
+18.3%
Revenue increased $12.8 billion or 18% driven by growth in Microsoft Cloud.
Gross margin
Current period
$56.1B
Prior period
$48.1B
Change
+16.4%
Gross margin increased $7.9 billion or 16% with growth across each of our segments.
Operating income
Current period
$38.4B
Prior period
$32.0B
Change
+20.0%
Operating income increased $6.4 billion or 20% driven by growth in Productivity and Business Processes and Intelligent Cloud.
Net income
Current period
$31.8B
Prior period
$25.8B
Change
+23.1%
Current year net income and diluted EPS were negatively impacted by net losses from investments in OpenAI, which resulted in a decrease in net income of $14 million.
Diluted earnings per share
Current period
$4.3
Prior period
$3.5
Change
+23.4%
Diluted EPS increased 23% YoY, in line with net income growth.
Adjusted net income (non-GAAP)
Current period
$31.8B
Prior period
$26.4B
Change
—
Adjusted net income excludes net gains and losses from investments in OpenAI.
Adjusted diluted earnings per share (non-GAAP)
Current period
$4.3
Prior period
$3.5
Change
+20.6%
Adjusted diluted EPS excludes net gains and losses from investments in OpenAI.

Financial highlights: current period, prior period, change, and investor takeaway per metric
Metric	Current Period	Prior Period	Change	Investor Takeaway
Total revenue	$82.9B	$70.1B	+18.3%	Revenue increased $12.8 billion or 18% driven by growth in Microsoft Cloud.
Gross margin	$56.1B	$48.1B	+16.4%	Gross margin increased $7.9 billion or 16% with growth across each of our segments.
Operating income	$38.4B	$32.0B	+20.0%	Operating income increased $6.4 billion or 20% driven by growth in Productivity and Business Processes and Intelligent Cloud.
Net income	$31.8B	$25.8B	+23.1%	Current year net income and diluted EPS were negatively impacted by net losses from investments in OpenAI, which resulted in a decrease in net income of $14 million.
Diluted earnings per share	$4.3	$3.5	+23.4%	Diluted EPS increased 23% YoY, in line with net income growth.
Adjusted net income (non-GAAP)	$31.8B	$26.4B	—	Adjusted net income excludes net gains and losses from investments in OpenAI.
Adjusted diluted earnings per share (non-GAAP)	$4.3	$3.5	+20.6%	Adjusted diluted EPS excludes net gains and losses from investments in OpenAI.

Earnings Quality & Cash Conversion

GAAP net income of $31,778M includes net losses from investments in OpenAI of $14M (net of tax), which reduced net income. Adjusted net income (non-GAAP) of $31,792M excludes these OpenAI net losses. For the nine months ended March 31, 2026, GAAP net income of $97,983M includes net gains from investments in OpenAI of $4,483M (net of tax), while adjusted net income (non-GAAP) of $93,500M excludes these gains.

Value Drivers & Capital Allocation

Capital expenditures $30.9B (prior $16.7B) (selected cash-flow amount, not necessarily total capital investment).

Return on equity was 7.7% (prior 8.0%) (period net income / period-end equity, not annualized); return on assets 4.6% (period net income / period-end assets, not annualized).

Forward Signals

No specific financial guidance provided in the filing.

Known trends

The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.

Subsequent events

In October 2025 and April 2026, we extended this partnership and continue to build on our shared vision to advance artificial intelligence responsibly and make its benefits broadly accessible.

Risks

3 source-verified filing excerpts. Selected excerpts are not a complete risk inventory.

Filing excerpt 1

EvidenceIn the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest.

Filing excerpt 2

Evidencebeginning in late November 2023, a nation-state associated threat actor used a password spray attack to compromise a legacy test account and, in turn, gain access to Microsoft email accounts.

Filing excerpt 3

EvidenceWe are incurring significant costs to build and maintain infrastructure to support cloud-based and AI services, reducing operating margins.

Balance Sheet & Liquidity

Leverage: Identified debt as of 2026-03-31: reported debt balance of unestablished maturity scope of $31.4B. The concept behind this balance does not establish which maturities it covers. Total debt, net debt and debt-to-equity are therefore not stated.

Liquidity: Cash, cash equivalents, and short-term investments totaled $78.3B as of March 31, 2026, down from $94.6B as of June 30, 2025.

Cash flow: Cash flow — operating $46.7B, investing $-27.4B, financing $-11.4B.

Working capital: Current assets $175.3B vs. current liabilities $136.7B (current ratio 1.28x). Prior reported balance sheet as of 2025-06-30: $191.1B vs. $141.2B (1.35x).

Maturities & covenants

Certain counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liquidity of $1.0 billion.

Notable Footnotes

Item	Impact
OpenAI investment	Microsoft holds an investment of approximately 27 percent of OpenAI on an as-converted basis accounted for under the equity method, with total funding commitments of $13 billion, of which $11.8 billion has been funded as of March 31, 2026.
Other receivables related to server components	Other receivables related to activities to facilitate the purchase of server components were $17.8 billion as of March 31, 2026, up from $8.2 billion as of June 30, 2025.

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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.