Microsoft sold $331.8 billion of products and services in its fiscal year 2026, which ended on 30 June 2026. Microsoft Cloud, the company's name for Azure plus the cloud versions of its business software, made 64.6% of that revenue.
In its latest quarter, July to September 2026, revenue was $92.3 billion, up 18.8% on a year earlier. Microsoft announced the figure on 28 October 2026. We wrote this guide on 4 November 2026 from filings up to that date.
What does Microsoft do? Microsoft sells cloud computing, business software, Windows, video games, and search advertising. Its largest product line is Azure, the cloud service that companies rent to run software and AI models. Azure brought in $101.9 billion in fiscal year 2026.
Microsoft's operating margin, which is operating profit as a share of revenue on US accounting rules (GAAP), was 46.8% in fiscal year 2026.
Free cash flow, the cash left after spending on buildings and equipment, was $67.0 billion in fiscal year 2026, down from $74.1 billion in fiscal year 2024.
Capital spending in July to September 2026 was $39.4 billion, more than double the $19.4 billion a year earlier.
How do we describe Microsoft's business?
Every business figure comes from Microsoft's own filings with the US Securities and Exchange Commission. The annual report is called a Form 10-K. The quarterly report is a Form 10-Q. Microsoft's fiscal year ends on 30 June, so fiscal year 2026 ran from 1 July 2025 to 30 June 2026.
Segment and product-line figures for fiscal year 2026 come from the recast Microsoft filed on 28 October 2026.
Profit and margin figures are GAAP, meaning US accounting rules, as our post on GAAP and non-GAAP explains. Free cash flow is net cash from operations less additions to property and equipment, both from the cash flow statement.
What does Microsoft sell and to whom?
Microsoft reports two segments, which are the parts of the company that its management reviews separately. It announced the change in September 2026 and recast earlier results to match. We use the new ones.
Agents and Infra holds Azure, Microsoft's business software, and its AI assistants. It made $268.1 billion in fiscal year 2026, or 80.8% of revenue. Devices and Consumer holds search advertising, XBOX video games, and Windows licences and devices. It made $63.7 billion, or 19.2%.
Microsoft splits revenue into eight product lines. Azure, at $101.9 billion, is the largest. It rents computing power, storage, and AI services to customers, who pay for what they use.
Microsoft 365 cloud, at $100.3 billion, covers subscriptions to Office applications, the GitHub developer platform, and Copilot, Microsoft's AI assistant. It also holds consumer subscriptions. It rose 18.5%.
An OEM, or original equipment manufacturer, is a company that builds personal computers. Windows OEM and devices counts the Windows licences those makers buy, plus Microsoft's own Surface devices.
Productivity and server licensing, at $37.3 billion, sells software that customers run on their own servers and computers. Industry solutions, at $20.3 billion, covers LinkedIn Talent Solutions and Sales Solutions, Dynamics 365 business applications, and Healthcare and Life Sciences cloud. Frontier and support services, at $8.3 billion, helps customers deploy Microsoft products and trains their developers.
Source: Microsoft SEC filings; YX Insights
The chart shows the eight product lines for fiscal year 2026. Azure and Microsoft 365 cloud are each about 30% of revenue. XBOX fell 7.1%. Windows OEM and devices fell 1.3%. The other six lines rose.
Microsoft Cloud sits outside the eight lines. It adds Azure, Microsoft 365 commercial cloud, and Industry solutions cloud. It was $214.4 billion, up 27%. The Microsoft 365 cloud line also holds consumer cloud. The Industry solutions line also holds on-premises products. Microsoft Cloud leaves both out, so the lines in the chart do not add to this figure.
How does Microsoft make money?
Customers pay for cloud services by subscription or by use. They pay licence fees for software they run themselves. Advertisers pay for search advertising. Consumers and device makers pay for games and Windows.
Microsoft calls the contracted revenue it has not yet recognised the commercial remaining performance obligation. It was $677 billion at 30 September 2026, up 73% on a year earlier.
What are Microsoft's key numbers?
Revenue rose from $245.1 billion in fiscal year 2024 to $281.7 billion in fiscal year 2025, a gain of 14.9%. It reached $331.8 billion in fiscal year 2026, up 17.8%.
Operating margin rose each year, from 44.6% to 45.6% to 46.8%. Gross margin, which is revenue less the cost of revenue as a share of revenue, fell from 69.8% to 68.8% to 67.9%.
Source: Microsoft Form 10-K filings; YX Insights
Agents and Infra earned an operating margin of 50.9%, against 29.6% for Devices and Consumer. It produced 87.8% of Microsoft's operating income.
GAAP net income was $133.7 billion, a net margin of 40.3%.
Net cash from operations rose from $118.5 billion to $136.2 billion to $182.9 billion. Capital spending rose faster, from $44.5 billion to $64.6 billion to $115.9 billion.
Source: Microsoft Form 10-K filings; YX Insights
The chart shows free cash flow fell in both years, from $74.1 billion to $71.6 billion to $67.0 billion. Capital spending took 63.4% of operating cash in fiscal year 2026, against 37.5% in fiscal year 2024.
What has happened since the last quarter ended?
The three months to 30 September 2026 were Microsoft's first fiscal quarter of 2027.
July to September 2026 | July to September 2025 | |
|---|---|---|
Revenue | $92.3 billion | $77.7 billion |
Azure revenue | $33.2 billion | $22.4 billion |
Agents and Infra revenue | $76.8 billion | $61.7 billion |
Devices and Consumer revenue | $15.5 billion | $16.0 billion |
Gross margin | 67.8% | 69.0% |
Operating margin | 49.8% | 48.9% |
Net income (GAAP) | $36.6 billion | $27.7 billion |
Diluted earnings per share (GAAP) | $4.92 | $3.72 |
Net cash from operations | $58.0 billion | $45.1 billion |
Capital spending | $39.4 billion | $19.4 billion |
Free cash flow | $18.6 billion | $25.7 billion |
GAAP figures. Free cash flow is net cash from operations less additions to property and equipment. Source: Microsoft Form 10-Q and earnings release, 28 October 2026; YX Insights
Revenue was $92.3 billion, up 18.8%. Azure revenue rose 48.2% to $33.2 billion. Agents and Infra grew 24.5% while Devices and Consumer fell 3.2%. Windows OEM and devices fell 22% from a year earlier.
Operating margin was 49.8%, up from 48.9%. Gross margin was 67.8%, down from 69.0%. Microsoft Cloud gross margin fell to 66%, which Microsoft attributes to a shift in sales toward Azure, offset in part by margin improvements in Azure.
Free cash flow was $18.6 billion, down 27.4% from $25.7 billion. Operating cash rose 28.7% to $58.0 billion. Capital spending more than doubled to $39.4 billion from $19.4 billion, or 67.9% of operating cash.
Azure is the largest line. Its revenue rose 40.4% for the year and 48.2% in the latest quarter. The Microsoft Cloud gross margin was 66% in the latest quarter, down on a year earlier. Capital spending was 67.9% of operating cash in the quarter and 63.4% in fiscal year 2026.
Net income also carries gains and losses on Microsoft's investments in OpenAI, the AI company, which move GAAP profit without changing operating income.
Our post on the Magnificent Seven sets Microsoft beside six other megacap platforms.
How has Microsoft's stock done over five years?
We compare Microsoft with SPY (the S&P 500 ETF), an exchange-traded fund that tracks the S&P 500, an index of large US companies. Both lines start at 100 on the close of 3 November 2021 and end on 3 November 2026, a window of 1,255 closes including both end dates. Returns count dividends.
Source: YX Insights price data
The chart shows Microsoft ending at 162.5 and SPY at 173.6. That is a gain of 62.5% for Microsoft and 73.6% for SPY, or 10.2% and 11.7% a year.
A drawdown is a fall from a previous high, as our post on what a drawdown is explains. We searched all five years. Microsoft's worst ran from 19 November 2021 to 3 November 2022, a fall of 37.1%. SPY's worst ran from 3 January 2022 to 12 October 2022, a fall of 24.5%.
Microsoft lost 28.0% in 2022 against 18.2% for SPY. It gained 58.2% in 2023 against 26.2%.
These are past returns. Our post on a $10,000 stake in Microsoft covers a longer window.
Multi-model Signals covers Microsoft.
Microsoft sells cloud services, software, games, and Windows. Cloud services make most of its revenue.
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Common questions about Microsoft
What does Microsoft do?
Microsoft sells cloud computing, business software, Windows, video games, and search advertising. Its eight product lines brought in $331.8 billion in fiscal year 2026. Azure, the cloud computing service, was the largest at $101.9 billion, followed by Microsoft 365 cloud at $100.3 billion. Our post on the platform business model explains the structure.
How does Microsoft make money?
Microsoft makes money from cloud subscriptions and usage fees, software licences, advertising, and sales of games, Windows, and devices. Cloud dominates. Microsoft Cloud, which adds Azure, Microsoft 365 commercial cloud, and Industry solutions cloud, was $214.4 billion, or 64.6% of fiscal year 2026 revenue. Our post on how software companies make money covers the models.
What is Microsoft's biggest product line?
Azure is Microsoft's biggest product line by revenue. It brought in $101.9 billion in fiscal year 2026, which is 30.7% of the total and 40.4% more than a year earlier. Microsoft 365 cloud was close behind at $100.3 billion. These are two of the eight product lines Microsoft reports.
When does Microsoft's fiscal year end?
Microsoft's fiscal year ends on 30 June. Fiscal year 2026 ran from 1 July 2025 to 30 June 2026. Microsoft filed its annual report on 29 July 2026. Fiscal year 2027 began on 1 July 2026, so the quarter to 30 September 2026 was its first.
DISCLAIMER: This article is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
