Skip to main content

Microsoft Corp

MSFT

10-Q,quarter ended Sep 30, 2026,filed Oct 28, 2026,Original on SEC.gov (opens in a new tab)

3 of 3 checkable figures match the filing, 4 of 4 risk excerpts located in the filing text

Full summary
Coverage details

This summary passed the automatic coverage checks when it was generated.

Coverage does not verify every claim. Check the cited sources and the original filing.

The Print

Management tone: positive

Microsoft reported Q1 FY2027 revenue of $92.3B (up 19% YoY) and net income of $36.6B ($4.92 diluted EPS), with management attributing revenue growth to Agents and Infra, driven by Azure.

Revenue increased $14.6B or 19%, which the filing attributes to growth in Agents and Infra, with Agents and Infra revenue growth driven by Azure; Devices and Consumer revenue decreased, driven by Windows OEM and devices, offset in part by growth in Search and advertising. Cost of revenue increased $5.7B or 24% driven by growth in Agents and Infra, and Microsoft Cloud gross margin percentage decreased to 66% driven by sales mix shift to Azure, offset in part by product-level margin improvements, primarily in Azure.

  • Revenue rose 19% to $92.3B from $77.7B, with management stating growth was driven by Agents and Infra, which in turn was driven by Azure.
  • Net income rose 32% to $36.6B and diluted EPS rose 32% to $4.92; the filing states current-year results included $207M ($0.03 per share) of net gains from OpenAI investments versus $3.1B ($0.41 per share) of net losses in the prior year.
  • Adjusted net income (non-GAAP, excluding OpenAI investment gains/losses) rose 18% to $36.4B and adjusted diluted EPS rose 18% to $4.89.
  • Microsoft Cloud revenue increased 30% to $63.9B and commercial remaining performance obligation increased 73% to $677B, per the MD&A highlights.

Results That Matter

  • Revenue
    Current period
    $92.3B
    Prior period
    $77.7B
    Change
    +18.8%
    Management attributes the increase to growth in Agents and Infra, with Agents and Infra revenue growth driven by Azure.
  • Gross margin
    Current period
    $62.6B
    Prior period
    $53.6B
    Change
    +16.6%
    Gross margin increased $8.9B or 17%; Microsoft Cloud gross margin percentage decreased to 66% driven by sales mix shift to Azure, offset in part by product-level margin improvements, primarily in Azure.
  • Operating income
    Current period
    $45.9B
    Prior period
    $38.0B
    Change
    +21.0%
    Operating income increased $8.0B or 21% driven by growth in Agents and Infra; operating income percentage increased slightly, which the filing attributes to revenue growth, platform efficiency gains, and focused investments, offset in part by sales mix shift to Azure.
  • Net income
    Current period
    $36.6B
    Prior period
    $27.7B
    Change
    +32.0%
    Current-year net income included $207M of net gains from OpenAI investments; prior-year net income was reduced by $3.1B of net losses from OpenAI investments.
  • Diluted earnings per share
    Current period
    $4.92
    Prior period
    $3.72
    Change
    +32.3%
    Diluted EPS moved in line with net income; the filing states OpenAI investment gains added $0.03 per share in the current period versus a $0.41 per share reduction in the prior period.
  • Adjusted net income (non-GAAP)
    Current period
    $36.4B
    Prior period
    $30.8B
    Change
    unavailable
    The non-GAAP measure excludes net gains and losses from investments in OpenAI as defined by the company.
  • Adjusted diluted earnings per share (non-GAAP)
    Current period
    $4.89
    Prior period
    $4.13
    Change
    +18.4%
    Adjusted diluted EPS excludes net gains and losses from investments in OpenAI, per the company's reconciliation table.

What changed

Quarter over quarter, against the 10-Q for the quarter ended Mar 31, 2026.

Prior 10-Q

Revenue up 11.3%; Net income up 15.3%

  • Revenue+11.3%
    Prior $82.9B, current $92.3BFavorable
  • Net income+15.3%
    Prior $31.8B, current $36.6BFavorable
  • EPS (diluted)+15.2%
    Prior $4.27, current $4.92Favorable

▲ and ▼ show the direction of each change. Color and “Read as” show whether that direction is usually favorable for the metric.

Earnings Quality & Cash Conversion

Reported net income of $36,629M includes $272M of net gains from OpenAI investments (net of tax $207M, or $0.03 per diluted share), which the company excludes in its non-GAAP adjusted net income of $36,422M and adjusted diluted EPS of $4.89. The prior-year quarter's $27,747M net income included $4,061M of net losses from OpenAI investments (net of tax $3,086M, or $0.41 per diluted share), excluded from adjusted net income of $30,833M and adjusted diluted EPS of $4.13. Other income (expense), net was $38M versus $(3,660)M a year earlier, with the filing noting prior-year Other, net of $(4,923)M primarily reflected net recognized losses on equity method investments, including OpenAI.

Operating cash flow was 1.6x net income attributable to the parent (cash conversion); free cash flow of $18.6B (derived as operating cash flow minus the absolute selected capex cash-flow amount; not an issuer-defined or discretionary-cash measure).

Red flag

Other current assets rose to $57,709M from $48,594M at June 30, 2026, with the filing disclosing the current portion of other receivables related to activities to facilitate the purchase of server components increased to $35.7B from $27.8B.

Red flag

Accounts receivable decreased to $62,084M from $80,876M at June 30, 2026, while revenue rose 19% YoY; the cash flow statement shows a $17,104M source of cash from accounts receivable in the quarter.

Value Drivers & Capital Allocation

Capital returned — dividends paid $6.8B (prior $6.2B), share repurchases $4.4B (prior $5.7B); capital expenditures $39.4B (prior $19.4B) (selected cash-flow amount, not necessarily total capital investment).

Financing cash flow for 2026-07-01 to 2026-09-30 was an outflow of $16,640,000,000, compared with an outflow of $11,799,000,000 for 2025-07-01 to 2025-09-30. Both periods had net outflows.

“Cash from operations increased $12.9 billion to $58.0 billion for the three months ended September 30, 2026, primarily due to an increase in cash received from customers and a decrease in cash used to pay income taxes, offset in part by an increase in cash paid to suppliers. Cash used in financing increased $4.8 billion to $16.6 billion for the three months ended September 30, 2026, primarily due to a $4.9 billion increase in cash used for repayments of debt. Cash used in investing increased $7.4 billion to $42.0 billion for the three months ended September 30, 2026, primarily due to a $20.0 billion increase in additions to property and equipment and a $6.7 billion increase in cash used in other investing primarily to facilitate the purchase of components, offset in part by a $19.1 billion increase in cash from net investment purchases, sales, and maturities.”

Filing statement

“We will continue to invest in capital expenditures to support growth in our cloud offerings and our investments in AI training and other infrastructure.”

Filing statement

Period net income attributable to the parent / period-end equity, not annualized: 7.8% (prior at 2025-09-30: 7.6%); period net income attributable to the parent / period-end assets, not annualized: 4.7%.

Forward Signals

No quantitative revenue or earnings guidance is provided in this 10-Q; the filing states that interim results are not necessarily indicative of results for a full year.

Known trends

  • The investments we are making in cloud and datacenter infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.
  • Our revenue fluctuates quarterly and is generally higher in the fourth quarter of our fiscal year.
  • We remain under audit by the IRS for tax years 2014 to 2017.

Subsequent events

  • Not disclosed—no material event after the September 30, 2026 period end is described in the provided filing excerpts.

Risks

Excerpts are the filing’s own words; each heading is the start of its excerpt. Selected excerpts are not a complete risk inventory.

  • In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties…

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

  • These investments are being made at significant scale and on an accelerated timeline, require…

    These investments are being made at significant scale and on an accelerated timeline, require substantial and increasing capital expenditures and continued access to capital, and are in advance of fully developed revenue streams.

  • For the three months ended September 30, 2026, we recorded revenue from commercial arrangements…

    For the three months ended September 30, 2026, we recorded revenue from commercial arrangements with OpenAI, inclusive of revenue-sharing payments, of $10.0 billion.

  • Certain counterparty agreements for derivative instruments contain provisions that require…

    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.

4 of 4 excerpts located in the filing text

Segments

Segments
SegmentRevenueOperating IncomeRevenue ChangeCommentary
Agents and Infra$76.8B$40.6B+24.5%Azure revenue increased $10.8B or 48% driven by demand for services across the platform; Microsoft 365 commercial cloud revenue rose 17% on higher revenue per user from upsell to premium seat offerings including Microsoft 365 Copilot, E5, and E7, and increased consumption of usage-based services, primarily GitHub Copilot.
Devices and Consumer$15.5B$5.4B-3.2%Search and advertising revenue excluding traffic acquisition costs increased 12% driven by higher rate and volume across LinkedIn, Edge, and Bing; XBOX hardware revenue declined 14% on lower console volume, and Windows OEM and devices revenue decreased 22% driven by the prior-year Windows 10 end of support demand, inventory drawdowns by OEM and channel partners, and weaker PC market demand.

Balance Sheet & Liquidity

Leverage: Identified debt as of 2026-09-30 (carrying amount): long-term debt including current maturities of $35.5B; noncurrent long-term debt of $31.1B; current portion of long-term debt of $4.4B. Not separately reported in this filing's standardized data: short-term borrowings. Total debt, net debt and debt-to-equity are therefore not stated.

Liquidity: Cash, cash equivalents, and short-term investments totaled $64.5B, down from $76.8B at June 30, 2026; the company states these resources plus operating cash flows and capital markets access are sufficient to fund operating activities and cash commitments for at least the next 12 months and thereafter for the foreseeable future.

Cash flow: Cash flow — operating $58.0B, investing $-42.0B, financing $-16.6B.

Working capital: Current assets $186.1B vs. current liabilities $152.0B (current ratio 1.22x). Prior reported balance sheet as of 2026-06-30: $207.7B vs. $168.8B (1.23x).

Maturities & covenants

  • Current portion of long-term debt was $4,391M at September 30, 2026, down from $9,227M at June 30, 2026; repayments of debt were $4,850M in the quarter versus $0 in the prior-year period.
  • As of September 30, 2026, our long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral was required to be posted.

Notable Footnotes

Notable Footnotes
ItemImpact
Segment reporting recastIn September 2026 the company announced a new segment structure (Agents and Infra; Devices and Consumer) effective fiscal year 2027, and prior-period segment information was recast to conform.
OpenAI equity method investmentThe company holds an approximate 24% interest on an as-converted basis, has made total funding commitments of $13.0B of which $12.0B was funded as of September 30, 2026, and recorded $10.0B of revenue from commercial arrangements with OpenAI in the quarter.
Supplier-related receivables and restricted investmentsThe current portion of other receivables related to activities to facilitate the purchase of server components was $35.7B at September 30, 2026 versus $27.8B at June 30, 2026; restricted investments pursuant to a supplier agreement were $12.6B versus $11.3B.
Unearned revenue recognition scheduleTotal unearned revenue of $69,563M is expected to be recognized, with $30,299M in the three months ending December 31, 2026 and $22,202M in the three months ending March 31, 2027.

Ask MSFT’s 10-Q anything

Answers come from this filing, with cited passages you can check. Try one:

AI-generated. Informational only, not investment advice. May be incomplete or contain errors. The authoritative source is always the original SEC filing.