MICROSOFT CORP

Previous wording

Highlights from the first quarter of fiscal year 2026 compared with the first quarter of fiscal year 2025 included:

Current wording

Highlights from the second quarter of fiscal year 2026 compared with the second quarter of fiscal year 2025 included:

Previous wording

Microsoft Cloud revenue increased 26% to $49.1 billion.

Current wording

Microsoft Cloud revenue increased 26% to $51.5 billion.

Previous wording

Commercial remaining performance obligation increased 51% to $392 billion.

Current wording

Commercial remaining performance obligation increased 110% to $625 billion.

Previous wording

Windows OEM and Devices revenue increased 6%.

Current wording

Windows OEM and Devices revenue increased 1%.

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Xbox content and services revenue increased 1%.

Current wording

Xbox content and services revenue decreased 5%.

Previous wording

Microsoft and OpenAI Global, LLC (“OpenAI”) maintain a long-term strategic partnership originally established in 2019. Microsoft is a major investor in OpenAI, and the companies have reciprocal revenue-sharing arrangements. We hold rights to OpenAI’s intellectual property, including models and infrastructure, for integration into our products.

Current wording

We have a long-term strategic partnership with OpenAI which was originally established in 2019. In October 2025, we signed a new definitive agreement with OpenAI that extends this partnership and continues to build on our shared vision to advance artificial intelligence responsibly and make its benefits broadly accessible. Microsoft is a major investor in OpenAI, and the companies have reciprocal revenue-sharing arrangements. We hold rights to OpenAI’s intellectual property, including models and infrastructure, for integration into our products.

Previous wording

Our international operations provide a significant portion of our total revenue and expenses. Many of these revenue and expenses are denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may significantly affect revenue and expenses. Fluctuations in the U.S. dollar relative to certain foreign currencies did not have a material impact on reported revenue and expenses from our international operations in the first quarter of fiscal year 2026.

Current wording

Our international operations provide a significant portion of our total revenue and expenses. Many of these revenue and expenses are denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may significantly affect revenue and expenses. Fluctuations in the U.S. dollar relative to certain foreign currencies increased reported revenue and did not have a material impact on reported expenses from our international operations for the three and six months ended December 31, 2025.

Previous wording

Adjusted net income and adjusted diluted earnings per share (“EPS”) are non-GAAP financial measures. These non-GAAP financial measures exclude net losses from investments in OpenAI. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results.

Current wording

Adjusted net income and adjusted diluted earnings per share (“EPS”) are non-GAAP financial measures. These non-GAAP financial measures exclude net gains and losses from investments in OpenAI. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results.

Previous wording

Gross margin percentage decreased slightly driven by scaling our AI infrastructure and growing usage of AI product features, offset in part by efficiency gains across the Microsoft Cloud.

Current wording

Gross margin percentage decreased slightly driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains across the Microsoft Cloud and sales mix shift to higher margin businesses.

Previous wording

Microsoft Cloud gross margin percentage decreased to 68% driven by scaling our AI infrastructure and growing usage of AI product features, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.

Current wording

Microsoft Cloud gross margin percentage decreased to 67% driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.

Previous wording

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 and diluted EPS of $3.1 billion and $0.41, respectively. Prior year net income and diluted EPS were negatively impacted by net losses from investments in OpenAI, which resulted in a decrease in net income and diluted EPS of $523 million and $0.07, respectively.

Current wording

Current year net income and diluted EPS were positively impacted by net gains from investments in OpenAI, which resulted in an increase in net income and diluted EPS of $7.6 billion and $1.02, respectively. Prior year net income and diluted EPS were negatively impacted by net losses from investments in OpenAI, which resulted in a decrease in net income and diluted EPS of $939 million and $0.12, respectively.

Previous wording

Revenue increased $12.1 billion or 18% with growth across each of our segments. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue increased driven by Windows OEM and Search and news advertising, offset in part by declines in our hardware businesses, including Devices and Xbox hardware.

Current wording

Revenue increased $23.7 billion or 18% with growth across each of our segments. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue increased driven by Search and news advertising and Windows OEM, offset in part by Gaming and Devices.

Previous wording

Operating income included a favorable foreign currency impact of 2%.

Current wording

Revenue, gross margin, and operating income included a favorable foreign currency impact of 2%, 2%, and 3%, respectively.

Previous wording

Revenue increased $4.7 billion or 17%.

Current wording

Revenue increased $4.7 billion or 16%.

Previous wording

Microsoft 365 Commercial products and cloud services revenue increased $3.5 billion or 17%. Microsoft 365 Commercial cloud revenue grew 17% with growth in revenue per user driven by Microsoft 365 E5 and Microsoft 365 Copilot, as well as benefit from in-period revenue recognition. Microsoft 365 Commercial seats grew 6% driven by small and medium businesses and frontline worker offerings. Microsoft 365 Commercial products revenue grew 17% driven by an increase in Office 2024 transactional purchasing as well as growth in the Windows Commercial on-premises components of Microsoft 365 suite sales.

Current wording

Microsoft 365 Commercial products and cloud services revenue increased $3.4 billion or 16%. Microsoft 365 Commercial cloud revenue grew 17% with growth in revenue per user driven by Microsoft 365 E5 and Microsoft 365 Copilot. Microsoft 365 Commercial seats grew 6% driven by small and medium businesses and frontline worker offerings. Microsoft 365 Commercial products revenue grew 13% driven by Windows Commercial on-premises components of Microsoft 365 suite sales, as well as an increase in Office 2024 transactional purchasing.

Previous wording

Microsoft 365 Consumer products and cloud services revenue increased $477 million or 28%. Microsoft 365 Consumer cloud revenue grew 26% driven by growth in revenue per user and Microsoft 365 Consumer subscriber growth of 7%.

Current wording

Microsoft 365 Consumer products and cloud services revenue increased $484 million or 27%. Microsoft 365 Consumer cloud revenue grew 29% driven by growth in revenue per user and Microsoft 365 Consumer subscriber growth of 6%.

Previous wording

Dynamics products and cloud services revenue increased $287 million or 16% driven by growth in Dynamics 365. Dynamics 365 revenue grew 18% with growth across all workloads.

Current wording

Dynamics products and cloud services revenue increased $291 million or 15% driven by growth in Dynamics 365. Dynamics 365 revenue grew 19% with growth across all workloads.

Previous wording

Cost of revenue increased $3.7 billion or 43% driven by growth in Azure.

Current wording

Operating income increased $3.7 billion or 22%.

Previous wording

Operating income increased $7.4 billion or 24% with growth across each of our segments.

Current wording

Revenue increased $7.4 billion or 29%.

Previous wording

Enterprise and partner services revenue increased $94 million or 5% driven by growth in Enterprise Support Services, offset in part by a decline in Industry Solutions.

Current wording

Enterprise and partner services revenue increased $146 million or 8% driven by growth in Enterprise Support Services.

Previous wording

Gross margin increased $3.1 billion or 20% driven by growth in Azure. Gross margin percentage decreased driven by the impact of scaling our AI infrastructure, offset in part by efficiency gains in Azure.

Current wording

Gross margin increased $3.2 billion or 20% driven by growth in Azure. Gross margin percentage decreased driven by the continued investments in AI infrastructure and sales mix shift to Azure, offset in part by efficiency gains in Azure.

Previous wording

Search and news advertising revenue increased $472 million or 15%. Search and news advertising revenue excluding traffic acquisition costs increased 16% driven by higher search volume and continued benefit from third-party partnerships.

Current wording

Search and news advertising revenue increased $254 million or 7%. Search and news advertising revenue excluding traffic acquisition costs increased 10% driven by higher search volume and continued benefit from third-party partnerships.

Previous wording

LinkedIn revenue increased $422 million or 10% driven by growth in Marketing Solutions.

Current wording

LinkedIn revenue increased $917 million or 10% driven by growth in Marketing Solutions.

Previous wording

Gross margin increased $4.3 billion or 19% driven by growth in Microsoft 365 Commercial cloud. Gross margin percentage increased driven by efficiency gains in Microsoft 365 Commercial cloud even with the impact of scaling our AI infrastructure and growing usage of AI product features.

Current wording

Gross margin increased $8.4 billion or 18% driven by growth in Microsoft 365 Commercial cloud. Gross margin percentage increased driven by efficiency gains in Microsoft 365 Commercial cloud even with the impact of investments in AI infrastructure and growing AI product usage.

Previous wording

Server products and cloud services revenue increased $6.7 billion or 30% driven by Azure and other cloud services. Azure and other cloud services revenue grew 40% driven by demand for our portfolio of services with continued growth across all workloads. Server products revenue increased 1% driven by an increase in transactional purchasing of Windows Server 2025.

Current wording

Server products and cloud services revenue increased $13.9 billion or 30% driven by Azure and other cloud services. Azure and other cloud services revenue grew 40% driven by demand for our portfolio of services with continued growth across all workloads. Server products revenue increased 2% driven by higher transactional purchasing and demand for our hybrid solutions, with benefit from the launch of SQL Server 2025.

Previous wording

Operating expenses increased $133 million or 4% driven by investments in AI talent and compute capacity to support product development that benefits the entire portfolio.

Current wording

Operating expenses increased $397 million or 4% driven by research and development investments in compute capacity and AI talent.

Previous wording

Windows and Devices revenue increased $222 million or 5%. Windows OEM and Devices revenue increased 6% driven by Windows OEM growth of 18% with demand ahead of Windows 10 end of support and inventory levels that remained elevated, offset in part by a decline in Devices.

Current wording

Windows and Devices revenue increased $189 million or 2%. Windows OEM and Devices revenue increased 3% driven by Windows OEM growth of 11% with benefit from Windows 10 end of support and inventory levels that remained elevated, offset in part by a decline in Devices.

Previous wording

Gaming revenue decreased $113 million or 2% driven by a decline in Xbox hardware, offset in part by growth in Xbox content and services. Xbox hardware revenue decreased 29% driven by lower volume of consoles sold. Xbox content and services revenue increased 1% on a strong prior year comparable with growth in Xbox Game Pass and third-party content, offset in part by a decline in first-party content.

Current wording

Gaming revenue decreased $736 million or 6% driven by declines in Xbox hardware and Xbox content and services. Xbox hardware revenue decreased 31% driven by lower volume of consoles sold. Xbox content and services revenue decreased 2% driven by a decline in first-party content, offset in part by growth in Xbox Game Pass and third-party content.

Previous wording

Cost of revenue decreased $183 million or 3% driven by lower hardware sales, offset in part by growth in Search and news advertising.

Current wording

Cost of revenue decreased $706 million or 5% driven by lower hardware sales, offset in part by growth in Search and news advertising.

Previous wording

Gross margin increased $763 million or 11% driven by growth in Windows OEM and Search and news advertising. Gross margin percentage increased driven by sales mix shift to higher margin businesses.

Current wording

Gross margin increased $885 million or 6% driven by growth in Windows OEM and Search and news advertising. Gross margin percentage increased driven by sales mix shift to higher margin businesses.

Previous wording

General and administrative expenses increased $133 million or 8% driven by higher legal expenses.

Current wording

General and administrative expenses increased $109 million or 6% driven by higher legal expenses.

Previous wording

Interest and dividends income increased primarily due to higher portfolio balances and higher yields on debt securities. Interest expense increased primarily due to higher finance lease interest expense, offset in part by higher capitalization of debt interest expense. Net recognized losses on investments increased primarily due to losses on equity securities in the current period as compared to gains in the prior period. Net gains on derivatives increased primarily due to gains on equity derivatives in the current period as compared to losses in the prior period. Other, net primarily reflects net recognized losses on equity method investments, including OpenAI.

Current wording

Interest and dividends income increased primarily due to higher portfolio balances and higher yields on debt securities. Interest expense increased primarily due to higher finance lease interest expense, offset in part by higher capitalization of debt interest expense. Net recognized losses on investments decreased primarily due to lower impairments, offset in part by losses on equity securities in the current period as compared to gains in the prior period. Net gains on derivatives increased primarily due to gains on equity derivatives in the current period as compared to losses in the prior period. Other, net primarily reflects net recognized gains (losses) on equity method investments, including OpenAI.

Previous wording

Our effective tax rate was 19% for both the three months ended September 30, 2025 and 2024. Our effective tax rate for the three months ended September 30, 2025 was relatively unchanged compared to prior year as U.S. tax law changes from the One Big Beautiful Bill Act enacted on July 4, 2025 were offset by changes in the mix of our earnings and tax expenses between the U.S. and foreign countries.

Current wording

Our effective tax rate was 20% for both the three and six months ended December 31, 2025, and 18% for both the three and six months ended December 31, 2024. The increase in our effective tax rate for the three and six months ended December 31, 2025 compared to the prior year was primarily due to deferred tax expense attributable to the dilution gain from the OpenAI Recapitalization and changes in the mix of our earnings and tax expenses between the U.S. and foreign countries.

Previous wording

Our effective tax rate was lower than the U.S. federal statutory rate for the three months ended September 30, 2025, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland.

Current wording

Our effective tax rate was lower than the U.S. federal statutory rate for the three and six months ended December 31, 2025, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland.

Previous wording

Adjusted other income (expense), net, adjusted net income, and adjusted diluted EPS are non-GAAP financial measures which exclude net losses from investments in OpenAI. We believe these non-GAAP measures aid investors by providing additional insight into our financial performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. These non-GAAP financial measures presented should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Current wording

Adjusted other income (expense), net, adjusted net income, and adjusted diluted EPS are non-GAAP financial measures which exclude net (gains) losses from investments in OpenAI. We believe these non-GAAP measures aid investors by providing additional insight into our financial performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. These non-GAAP financial measures presented should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Previous wording

Cash, cash equivalents, and short-term investments totaled $102.0 billion and $94.6 billion as of September 30, 2025 and June 30, 2025, respectively. Equity and other investments were $11.5 billion and $15.4 billion as of September 30, 2025 and June 30, 2025, respectively. Our short-term investments are primarily intended to facilitate liquidity and capital preservation. They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated securities to diversify risk. Our fixed-income investments are exposed to interest rate risk and credit risk. The credit risk and average maturity of our fixed-income portfolio are managed to achieve economic returns that correlate to certain fixed-income indices. The settlement risk related to these investments is insignificant given that the short-term investments held are primarily highly liquid investment-grade fixed-income securities.

Current wording

Cash, cash equivalents, and short-term investments totaled $89.5 billion and $94.6 billion as of December 31, 2025 and June 30, 2025, respectively. Equity and other investments were $21.2 billion and $15.4 billion as of December 31, 2025 and June 30, 2025, respectively. Our short-term investments are primarily intended to facilitate liquidity and capital preservation. They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated securities to diversify risk. Our fixed-income investments are exposed to interest rate risk and credit risk. The credit risk and average maturity of our fixed-income portfolio are managed to achieve economic returns that correlate to certain fixed-income indices. The settlement risk related to these investments is insignificant given that the short-term investments held are primarily highly liquid investment-grade fixed-income securities.

Previous wording

Cash from operations increased $10.9 billion to $45.1 billion for the three months ended September 30, 2025, primarily due to an increase in cash received from customers, offset in part by an increase in cash paid to suppliers and cash used to pay income taxes. Cash used in financing decreased $4.8 billion to $11.8 billion for the three months ended September 30, 2025, primarily due to a $6.7 billion decrease in cash used for repayments of debt, offset in part by a $1.5 billion increase in common stock repurchases. Cash used in investing increased $19.4 billion to $34.6 billion for the three months ended September 30, 2025, primarily due to a $10.9 billion increase in cash used in net investment purchases, sales, and maturities, a $5.3 billion increase in other investing to facilitate the purchase of components, and a $4.5 billion increase in additions to property and equipment.

Current wording

Cash from operations increased $24.3 billion to $80.8 billion for the six months ended December 31, 2025, primarily due to an increase in cash received from customers, offset in part by an increase in cash paid to suppliers. Cash used in financing increased $1.6 billion to $29.4 billion for the six months ended December 31, 2025, primarily due to a $4.0 billion increase in common stock repurchases, offset in part by a $3.7 billion decrease in cash used for repayments of debt. Cash used in investing increased $28.0 billion to $57.3 billion for the six months ended December 31, 2025, primarily due to an $18.5 billion increase in additions to property and equipment, a $5.9 billion increase in other investing to facilitate the purchase of components, and a $5.7 billion increase in cash used in net investment purchases, sales, and maturities.

Previous wording

For the three months ended September 30, 2025 and 2024, we repurchased 8 million shares and 7 million shares of our common stock for $4.0 billion and $2.8 billion, respectively, through our share repurchase program. All repurchases were made using cash resources. As of September 30, 2025, $53.4 billion remained of our $60 billion share repurchase program. Refer to Note 14 – Stockholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

Current wording

For the six months ended December 31, 2025 and 2024, we repurchased 20 million shares and 15 million shares of our common stock for $9.9 billion and $6.3 billion, respectively, through our share repurchase program. All repurchases were made using cash resources. As of December 31, 2025, $47.4 billion remained of our $60 billion share repurchase program. Refer to Note 14 – Stockholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

Previous wording

For the three months ended September 30, 2025 and 2024, our Board of Directors declared dividends totaling $6.8 billion and $6.2 billion, respectively. We intend to continue returning capital to shareholders in the form of dividends, subject to declaration by our Board of Directors. Refer to Note 14 – Stockholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

Current wording

For the six months ended December 31, 2025 and 2024, our Board of Directors declared dividends totaling $13.5 billion and $12.3 billion, respectively. We intend to continue returning capital to shareholders in the form of dividends, subject to declaration by our Board of Directors. Refer to Note 14 – Stockholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).