What did Microsoft report for the quarter ended 30 September 2026?
Microsoft reported revenue of $92.3 billion for the quarter ended 30 September 2026, up 19% from the same period a year earlier. Operating income rose 21% to $45.9 billion. Net income rose 32% to $36.6 billion, or $4.92 per diluted share, according to the results release published on 28 October.
Those figures include a swing in the value of Microsoft's OpenAI stake. Strip it out and adjusted net income rose 18% to $36.4 billion, with adjusted earnings of $4.89 a share. Analysts polled by LSEG had expected $4.73 on revenue of $90.69 billion, CNBC reported. Revenue beat that consensus by about $1.6 billion.
A year earlier, net income was $27.7 billion, or $3.72 a share. Revenue rose by $14.6 billion year on year, and operating income captured $8.0 billion of that increase, according to the 10-Q. Agents and Infra added $15.1 billion of revenue, while Devices and Consumer gave back about $0.5 billion.
Microsoft's costs grew faster than revenue. Cost of revenue rose $5.7 billion, or 24%, which the filing attributes to growth in Agents and Infra. The company still lifted operating income by 21%, helped by what it calls platform efficiency gains.
The cloud business did most of the work. Microsoft Cloud revenue was $63.9 billion, up 30%, and commercial remaining performance obligation rose 73% to $677 billion. That backlog measures contracted work that has not yet been billed. Microsoft also returned $10.2 billion to shareholders through dividends and buybacks.
This was the first quarter reported under a new structure. Microsoft replaced Productivity and Business Processes, Intelligent Cloud and More Personal Computing with two segments. Agents and Infra, which holds Azure, Microsoft 365 and server products, reported $76.8 billion of revenue, up 25%. Devices and Consumer, which holds Windows, Xbox, Surface and advertising, fell 3% to $15.5 billion.
The reorganisation, announced in September, also changed what investors can see. Microsoft now discloses Azure revenue in dollars every quarter. Azure produced $33.17 billion in the quarter, against a StreetAccount consensus of $32.32 billion.
Shares rose 4% in extended trading after the release, CNBC reported. Investors focused on two things: faster cloud growth and a capital spending bill that came in below forecasts.
How much of Microsoft's revenue now comes from OpenAI?
The 10-Q filed with the US Securities and Exchange Commission on 28 October answers that question directly. Microsoft recorded $10.0 billion from "commercial arrangements with OpenAI, inclusive of revenue-sharing payments" in the three months to 30 September. That is almost 11% of group revenue.
The disclosure appears because of accounting rules, not because Microsoft volunteered a customer breakdown. Microsoft holds an interest of about 24% in OpenAI on an as-converted basis and accounts for the stake under the equity method. That makes OpenAI a related party under accounting standard ASC 850, which requires companies to disclose revenue and receivables from such parties.
The relationship is also not fully settled in cash. Accounts receivable from OpenAI stood at $7.2 billion on 30 September, up from $6.0 billion three months earlier. Microsoft has committed $13.0 billion to the investment in total. Of that, $12.0 billion had been funded by 30 September.
The sums are growing quickly. TechCrunch reported that revenue from OpenAI reached $24.1 billion in Microsoft's 2026 fiscal year. At the latest quarterly pace, the annual figure would be about $40 billion. Microsoft has not said how much of that is revenue sharing and how much is Azure consumption.
Those are different businesses. Revenue sharing is OpenAI passing over part of its own sales. Azure consumption is OpenAI renting compute from Microsoft. TechCrunch reported that neither company has confirmed a 20% revenue-share rate. It also reported that an April 2026 agreement keeps payments flowing until 2030, subject to a cap. The same agreement allows OpenAI to use competing cloud providers.
Why does the OpenAI number matter more than the headline?
Because the money moves in a loop. Microsoft sells cloud capacity to OpenAI, receives a share of OpenAI's revenue, and owns roughly a quarter of the company. Each leg is a real transaction with a contract behind it. Together they make Microsoft's AI revenue harder to read than an ordinary customer sale.
The equity stake also distorts the headline. Under the equity method, Microsoft books its share of OpenAI's results in other income. This quarter that produced $272 million of net gains. A year earlier the same line carried $4.1 billion of net losses. After tax, the swing added $207 million, or $0.03 a share, against a $3.1 billion hit in the prior year.
That is the arithmetic behind the gap between 32% reported net income growth and 18% adjusted growth. The operating business grew. The bottom line grew faster because the OpenAI stake stopped being a drag and became a small gain. Microsoft values the stake using the hypothetical liquidation at book value method, which the filing says reflects differing liquidation rights and priorities.
For investors, the result is three separate AI numbers reported at once. Azure growth shows demand for compute. The $10.0 billion shows how much of that demand comes from one partly owned customer. The equity-method line shows what Microsoft's stake is worth on paper. None of the three is a clean measure of outside demand, and each can move for reasons the others do not capture.
None of this implies wrongdoing. Related-party disclosure exists so investors can size the relationship, and Microsoft is now showing it. But the number matters for anyone comparing cloud providers. A dollar of revenue from a company you part-own is not the same as a dollar from an unrelated customer. The invoice may also be paid later.
The receivables line is worth watching for that reason. It tells you how much OpenAI still owes for previous transactions, not how much extra revenue Microsoft booked. Microsoft has not published a split between revenue sharing and compute sales. That split would be the cleanest way to judge how much of the $10.0 billion depends on OpenAI's own growth.
How fast is Azure growing, and what does it cost to keep up?
Azure revenue grew 48% to $33.17 billion. Growth was 42% in the June quarter, so the rate accelerated. Constant-currency growth was also 48%, because currency effects on Azure were negligible in the quarter.
Keeping that pace is expensive, even though the bill arrived below expectations. Capital expenditure including finance leases was $45.2 billion, up about 30% from a year earlier, CNBC reported. Analysts surveyed by StreetAccount had projected $50.67 billion. Cash paid for property and equipment, a narrower measure in the cash-flow statement, was $39.4 billion against $19.4 billion a year earlier.
Microsoft's finance chief, Amy Hood, gave a reason for the shortfall. "Some third-party capacity deliveries we expected in Q1 were delayed," she said on the earnings call. The delays involved providers that sell GPU capacity as a service, according to CNBC.
The mix of spending has shifted as well. About 75% of capital expenditure is now tied to short-lived assets such as Intel processors and Nvidia GPUs, Hood said. That compares with roughly 66% across the previous three quarters and half in the year-ago quarter.
Free cash flow fell 27% to $18.63 billion. That still leaves Microsoft unusual among large cloud providers. Alphabet reported more than $9 billion of negative free cash flow in its quarter. Meta's cash flow turned negative for the first time, CNBC reported.
Put another way, capital expenditure including finance leases equalled about 49% of the quarter's revenue. In the same three months a year earlier, the equivalent figure was closer to 45%, based on the prior-year comparison CNBC cited. The share is rising even as the absolute shortfall against forecasts grabbed attention.
Guidance points to more spending rather than less. Hood said Microsoft is targeting more than $50 billion of capital expenditure including finance leases in the fiscal second quarter. She put the figure for calendar 2027 at $170 billion. She said spending would accelerate in the second half of the fiscal year. The drivers are processors, memory and storage costs, GPUs, and the capacity that slipped into that period.
What do the new segments reveal about Windows, Xbox and Copilot?
Devices and Consumer is the smaller, shrinking half of Microsoft. Revenue fell 3% to $15.5 billion. Windows OEM and devices revenue dropped 22%. Microsoft attributed the fall to the prior year's Windows 10 end-of-support boost, inventory drawdowns and a weaker PC market.
Memory and storage costs are pushing device prices up while PC shipments contract. The Verge reported that the overall PC market fell 20% in the recent quarter. Hood told analysts she expects Windows OEM revenue to fall again next quarter, around "the mid 30s". She expects further declines across fiscal 2027.
Xbox followed the same pattern. Hardware revenue fell 14% and content and services fell 2%. Microsoft has not updated Game Pass subscriber numbers since reporting 34 million more than two years ago, The Verge noted.
The AI products sit in the other segment, and adoption is growing from a base Microsoft will not quantify. Nadella said the number of people using Microsoft 365 Copilot rose 50% from the previous quarter. The company did not disclose paid seats. Hood said the new Microsoft 365 E7 bundle has millions of seats.
Nadella also described a push to run models on local hardware rather than in the cloud. He said Microsoft is "making every PC a secure agent box". The aim, he said, is for more intelligence to be effectively unmetered as capable models run on devices. That ambition runs straight into the memory costs now lifting PC prices.
Search and advertising was the bright spot in the segment, with revenue excluding traffic acquisition costs up 12%. Industry solutions cloud revenue rose 10%. Those gains were not enough to offset the Windows decline.
Is Microsoft's AI spending turning into profit?
On the income statement, yes. Operating income rose 21% to $45.9 billion, slightly faster than revenue. The 10-Q says the operating margin improved on strong revenue growth and platform efficiency gains. A sales mix shift toward Azure partly offset that gain.
That mix shift matters. Cost of revenue rose 24%, faster than revenue, because Azure carries more hardware, power and depreciation than a software licence does. Every point of Azure growth adds revenue at a lower margin than Microsoft 365. That is why the company's margins move slowly even as cloud revenue compounds.
Demand is not the constraint. Hood said supply still falls short. "We still have demand that exceeds supply," she told analysts, according to CNBC. Commercial remaining performance obligation, up 73%, supports that claim.
The harder question is timing. A dollar spent on a GPU becomes depreciation over the life of the asset. Microsoft now says three-quarters of its capital spending goes to short-lived assets, which brings depreciation forward and shortens the payback window. Free cash flow fell even as profit rose.
Different audiences feel these numbers differently. Azure customers care about capacity, because Microsoft says demand still outruns supply. PC buyers care about memory costs, which Microsoft says are lifting device prices. OpenAI depends on Microsoft for compute and returns part of its revenue to the company. Investors care about the gap between cash generated and cash spent.
One quarter cannot settle the argument. Delayed capacity flatters margins now and adds costs later, when the equipment arrives. Azure's 48% growth came from capacity built in earlier quarters. Whether the next wave produces similar growth, at similar margins, is the test investors are actually running.
What should you watch next?
Microsoft guided fiscal second-quarter revenue to $96 billion to $97.1 billion, which implies growth of about 18.8% at the midpoint. Analysts polled by LSEG expected $95.6 billion. For Azure, Hood guided 49% to 50% constant-currency growth, against a 45.1% consensus.
Capital spending is the second number to watch. The company has pointed to more than $50 billion in the December quarter and $170 billion across calendar 2027. If third-party capacity keeps slipping, the spending lands later and the depreciation arrives later too.
The definition matters as much as the total. Microsoft reports capital expenditure including finance leases, cash paid for property and equipment, and a rising share of short-lived assets. It flagged that cash paid for property and equipment grew faster than total capital expenditure, which includes leases. Anyone comparing a quarter with a consensus forecast needs to know which measure the forecast used.
The OpenAI relationship deserves its own scrutiny. Watch the quarterly related-party revenue, the receivables balance, and any change to the revenue-sharing arrangement that runs to 2030. Watch, too, whether Microsoft starts breaking out the split between revenue sharing and Azure consumption.
On the device side, memory prices and PC demand will decide how deep the Windows decline goes. Microsoft has guided to another mid-30s fall in OEM revenue next quarter, and further declines through the year. The segment will keep dragging on group growth.
The next real test arrives with the December quarter. That is when the delayed capacity is supposed to come online and the spending curve steepens. If Azure growth holds near 50% while capital spending rises, the payback case gets stronger. If growth slows as spending climbs, the questions about circular AI revenue will get louder.