Microsoft (MSFT) Q2 2026 earnings summary

Executive summary

• Revenue reached $81.3 billion for the quarter ended December 31, 2025, up 17% year-over-year, led by Intelligent Cloud and Productivity and Business Processes, with More Personal Computing declining.

• Net income rose 60% year-over-year to $38.5 billion, with diluted EPS up 60% to $5.16, significantly impacted by OpenAI-related gains; adjusted EPS up 24% to $4.14.

• Microsoft Cloud revenue surpassed $50 billion, up 26% year-over-year, with commercial remaining performance obligation surging 110% to $625 billion.

• Operating income increased 21% to $38.3 billion, with operating margin expanding to 47%.

• Significant investments in AI infrastructure and product innovation fueled growth across all business segments.

Financial highlights

• Gross margin for the quarter was $55.3 billion, up 16% year-over-year, though gross margin percentage declined by 1 point to 68% due to AI investments.

• Cash flow from operations was $35.8 billion, up 60% year-over-year; free cash flow was $5.9 billion.

• $12.7 billion was returned to shareholders via dividends and share repurchases, up 32% year-over-year.

• Capital expenditures totaled $37.5 billion, with two-thirds spent on short-lived assets like GPUs and CPUs, up 66% year-over-year.

• Cash, cash equivalents, and short-term investments totaled $89.5 billion at quarter end.

Outlook and guidance

• Q3 revenue expected between $80.65 billion and $81.75 billion, up 15%-17% year-over-year.

• Commercial RPO reached $625 billion, up 110%, with 25% to be recognized as revenue in the next 12 months.

• FX expected to boost revenue growth by three points; operating margins projected to be down slightly year-over-year.

• Microsoft Cloud gross margin percentage forecasted at roughly 65%, down year-over-year due to continued AI investments.

• Productivity and Business Processes revenue expected to grow 14%-15%; Intelligent Cloud revenue to grow 27%-29%.