Microsoft Corporation (MSFT) Narrative

Sources: Annual Report on Form 10-K for the fiscal year ended June 30, 2025 (accession 0000950170-25-100235) and Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (accession 0001193125-26-191507), supplemented by Current Reports on Form 8-K as noted. Microsoft's fiscal year ends June 30, so fiscal Q3 2026 is the calendar quarter ended March 31, 2026.

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Business

From the FY2025 10-K, accession 0000950170-25-100235.

Microsoft is a technology company whose stated mission is to empower every person and organization on the planet to achieve more. It generates revenue by offering cloud-based solutions, content, and services to people and businesses; licensing and supporting software products; delivering online advertising; and designing and selling devices. Its largest expenses are employee compensation, support and investment in cloud services (including datacenter operations), the design/manufacture/marketing/sale of other products, and income taxes. As of June 30, 2025 the company employed approximately 228,000 people full-time, 125,000 in the U.S. and 103,000 internationally, of whom 89,000 were in operations, 80,000 in product research and development, 44,000 in sales and marketing, and 15,000 in general and administration.

Management frames R&D around three ambitions: reinventing productivity and business processes; building the intelligent cloud and intelligent edge platform; and creating more personal computing. The economic argument for the cloud business rests on three scale effects, datacenters that deploy compute at lower unit cost than smaller ones, aggregation of diverse customer/geographic/application demand that raises utilization, and multi-tenancy that lowers application maintenance labor.

Reportable segments

Microsoft reports three segments. In August 2024 it changed segment composition, most notably bringing the commercial components of Microsoft 365 together in Productivity and Business Processes; prior periods were recast beginning in fiscal 2025.

Productivity and Business Processes. Microsoft 365 Commercial products and cloud services (Microsoft 365 Commercial, Enterprise Mobility + Security, the cloud portion of Windows Commercial, the per-user portion of Power BI, Exchange, SharePoint, Teams, Microsoft 365 Security and Compliance, and Microsoft 365 Copilot, plus Windows Commercial on-premises and Office licensed on-premises); Microsoft 365 Consumer; LinkedIn (Talent Solutions, Marketing Solutions, Premium Subscriptions, Sales Solutions); and Dynamics (Dynamics 365 across ERP, CRM, Power Apps, Power Automate, plus on-premises ERP/CRM). Microsoft 365 Commercial revenue is driven by installed-base growth, revenue per user, and the ongoing shift from Office licensed on-premises to Microsoft 365.

Intelligent Cloud. Server products and cloud services, Azure and other cloud services (cloud and AI consumption-based services, GitHub cloud, Nuance Healthcare cloud, virtual desktop), and Server products (SQL Server, Windows Server, Visual Studio, System Center, related Client Access Licenses); plus Enterprise and partner services (Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, Learning Experience). Azure revenue is driven mainly by infrastructure- and platform-as-a-service consumption. Azure AI Foundry is the unified developer platform for designing, customizing, and managing AI applications and agents; the company cites custom-built silicon and chip-manufacturer partnerships as part of its AI supply.

More Personal Computing. Windows and Devices (Windows OEM licensing and Surface/PC accessories); Gaming (Xbox hardware, and Xbox content and services comprising first- and third-party content, Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising); and Search advertising (Bing, Copilot, Microsoft News, Microsoft Edge, and third-party affiliates). Windows OEM revenue is sensitive to PC unit volumes, device mix and form factor, developed vs. growth market demand, the AI PC category, Windows attachment rate, customer mix, OEM channel inventory levels, pricing and promotions, component supply constraints, and piracy.

How it sells

Volume licensing dominates the commercial motion. Software Assurance conveys rights to new software and upgrades over the contract period. Enterprise Agreements license cloud services and software organization-wide over three years for medium and large organizations. Microsoft Customer Agreements are non-expiring digital agreements. Microsoft Online Subscription Agreements serve small and medium organizations directly via the web. Microsoft Products and Services Agreements allow as-needed licensing with no organization-wide commitment. Open Value, Select Plus, the Cloud Solution Provider Program, the Services Provider License Agreement, and the Independent Software Vendor Royalty Program address smaller organizations, government/academic buyers, and partner channels. Revenue is seasonally highest in the fiscal fourth quarter, driven by a higher volume of multi-year contracts executed in that period.

Competition

Office competes with global application vendors, web and mobile application companies, AI-first application companies, and local developers. Windows faces competing software products and alternative platforms and devices. Enterprise Mobility + Security competes with identity and security vendors. LinkedIn competes with online professional networks, recruiting and talent management firms, job boards, learning providers, and advertising outlets. Dynamics competes with cloud and on-premises business-solution providers. Azure competes with other cloud service providers and open-source offerings; its AI offerings compete with hyperscalers and emerging competitors, "many of which are also current or potential partners." Server products compete with Unix and Linux ecosystems. Xbox and cloud gaming compete with other console platforms, online gaming ecosystems, game streaming services, and video streaming entertainment.

OpenAI relationship

Microsoft and OpenAI have maintained a long-term strategic partnership originally established in 2019. As described in the FY2025 10-K, Microsoft is a major investor, the companies have reciprocal revenue-sharing arrangements, Microsoft holds rights to OpenAI's intellectual property including models and infrastructure for integration into its products, the OpenAI API is exclusive to Azure and runs on Azure via the Azure OpenAI Service, and Microsoft has a right of first refusal on OpenAI's new capacity needs. The arrangement has since been restructured, see Current quarter below.

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Risk factors

From the FY2025 10-K, accession 0000950170-25-100235; substantially restated with minor updates in Part II, Item 1A of the fiscal Q3 2026 10-Q, accession 0001193125-26-191507.

Competition and business-model disruption. Barriers to entry in many of Microsoft's businesses are low and the areas it competes in evolve rapidly. Vertically integrated competitors control hardware, software, and services and can claim security and performance benefits; shifting more of Microsoft's own business to a vertically integrated model may raise cost of revenue and reduce operating margins. Substantial revenue still comes from Windows licenses on PCs, a category under pressure from smartphones and tablets; competing with operating systems licensed at low or no cost can compress PC OS margins. Competitors monetize through advertising or through modified open-source software and open AI models without bearing the full R&D cost.

Cloud and AI execution risk. Building and maintaining cloud and AI infrastructure carries significant cost and reduces operating margins. Success depends on bringing compelling services to market, maintaining utility and performance across device classes, attracting third-party developers, meeting reliability and security expectations, and staying platform-agnostic. Management states plainly that it is "uncertain whether our strategies will continue to attract users or generate the revenue required to succeed" and that revenue may not grow in line with the infrastructure and development investments being made. Users may also abuse cloud and AI services (unauthorized account access, payment fraud, cryptocurrency mining, launching cyberattacks).

Investment returns and transactions. Investments in new technology are speculative and may not generate significant revenue for several years, if at all; new products may be less profitable than historical offerings. Acquisitions, joint ventures, and strategic alliances, the 10-K cites the October 2023 Activision Blizzard acquisition and the OpenAI partnership, carry integration, retention, compliance, and control risk; Microsoft has "limited ability to control or influence third parties with whom we have arrangements." Benefits may arrive later or smaller than expected, potentially causing goodwill or intangible impairment. Transactions may be challenged even after completion.

Cybersecurity. Microsoft discloses that it has experienced cybersecurity incidents in which threat actors gained unauthorized access to its systems and data, including customer systems and data, and that a threat actor used information obtained to gain unauthorized access to some of its source code repositories and internal systems, with the possibility that the actor continues to use that information. The incident has resulted and may continue to result in reputational and customer-relationship harm. Nation-state attacks may intensify. Increasing use of generative AI models in internal systems may create new attack surfaces. Security failures could produce reduced revenue, higher costs, liability claims, and competitive damage; license agreements typically limit liability but those provisions may not withstand legal challenge, and Microsoft sometimes accepts larger liability exposure to win commercial objectives.

Data privacy and platform abuse. Growing scale of cloud offerings means storing and processing increasingly large amounts of personal data; controls may fail to prevent improper disclosure or insider misuse. Changes in law may weaken Microsoft's ability to stop third parties from scraping LinkedIn and other product data. Content platforms may carry hostile, misleading, harmful, or illegal content, including AI-driven impersonation, and content-moderation regulation increasingly conflicts with freedom-of-expression initiatives across jurisdictions.

AI-specific risk. AI algorithms or training methodologies may be flawed; datasets may be overbroad, insufficient, biased, or inaccurate; AI-generated content may be offensive, illegal, inaccurate, or harmful. Agentic AI systems that act autonomously may require human review of inputs and outputs. Exposure spans intellectual property claims from AI training and outputs, data privacy, and an evolving global regulatory landscape including the EU AI Act.

Operations and infrastructure. Datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers including GPUs, all exposed to clean-energy transition costs, environmental regulation, and geopolitical disruption. Outages, data loss, insufficient power or water supply, or inadequate storage/compute capacity could trigger contractual liability, regulatory action, and user loss. Some hardware components have very few qualified suppliers.

Legal, regulatory, and litigation. Microsoft is closely scrutinized under U.S. and foreign competition laws, with active digital-markets regulation in the EU, UK, U.S., and China. Emerging AI legislation could increase costs or restrict opportunity. Trade exposure includes sanctions, U.S. export controls, import controls, restrictions on data flows and outbound investment, tariff volatility, and shifting AI export-control policy (the 10-K names the AI Diffusion Rule and its rescission); management notes that tariff volatility "has triggered economic uncertainty and could impact cloud and devices supply chain cost competitiveness." Cybersecurity and personal-data regulation (GDPR, the Data Act, cross-border transfer restrictions) add compliance cost. Substantial government contract revenue brings audit, debarment, and funding-approval risk. Third parties assert intellectual property claims including current copyright infringement claims arising from AI training and output.

Tax. Microsoft remains under IRS audit for tax years 2014–2017 and received Notices of Proposed Adjustment for tax years 2004–2013 on September 26, 2023, primarily concerning intercompany transfer pricing, in which the IRS seeks an additional tax payment of $28.9 billion plus penalties and interest. Microsoft disagrees and will contest the NOPAs through IRS administrative appeals and, if necessary, judicial proceedings, and does not expect final resolution within twelve months. The effective tax rate benefits from earnings taxed at lower rates through the foreign regional operations center in Ireland, making the U.S./foreign earnings mix and any change to it consequential. OECD Pillar Two global minimum tax applies to Microsoft beginning in fiscal 2025.

General. Reputational and brand damage; adverse economic or market conditions, inflation, recession, or pandemic, that reduce IT spending and demand for computing power, PCs, servers, and other devices; catastrophic events and geopolitical conditions, with corporate headquarters, a significant portion of R&D, and other essential operations concentrated in the seismically active Seattle area and Silicon Valley; the ongoing conflicts in Ukraine and Israel-Gaza; climate change effects on energy supply and cooling costs; and dependence on attracting and retaining talented employees in an extremely competitive market, constrained by immigration policy and requiring effective succession planning.

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Management's discussion and analysis, fiscal year 2025

From the FY2025 10-K, accession 0000950170-25-100235; fiscal year ended June 30, 2025 compared with fiscal year 2024.

Headline results

Microsoft Cloud revenue increased 23% to $168.9 billion (from $137.7 billion in FY2024 and $111.6 billion in FY2023). Segment highlights: Microsoft 365 Commercial products and cloud services +14% (Microsoft 365 Commercial cloud +15%); Microsoft 365 Consumer products and cloud services +11% (consumer cloud +11%); LinkedIn +9%; Dynamics products and cloud services +15% (Dynamics 365 +19%); Server products and cloud services +23% (Azure and other cloud services +34%); Windows OEM and Devices +3%; Xbox content and services +16%; Search and news advertising ex-TAC +20%.

Revenue rose $36.6 billion or 15% with growth in every segment. Cost of revenue rose $13.7 billion or 19% on Microsoft Cloud growth. Gross margin rose $22.9 billion or 13%; gross margin percentage decreased slightly, driven by Intelligent Cloud and offset in part by More Personal Computing. Microsoft Cloud gross margin percentage fell to 69%, driven by the impact of scaling AI infrastructure, offset in part by Azure efficiency gains. Operating expenses rose only $3.8 billion or 6%, driven by cloud and AI engineering and Gaming (including Activision Blizzard). Operating income rose $19.1 billion or 17%.

Segment results (fiscal 2025)

Productivity and Business Processes revenue rose $14.0 billion or 13%; operating income rose $10.1 billion or 17%. Microsoft 365 Commercial products and cloud services rose $10.8 billion or 14%, with commercial cloud revenue up 15% on 6% seat growth (small and medium businesses, frontline worker offerings) plus revenue-per-user expansion; Microsoft 365 Commercial products grew 7% helped by the Office 2024 launch. Microsoft 365 Consumer rose $756 million or 11%, with consumer cloud up 11% on 8% subscriber growth to 89.0 million and the January 2025 price increase. LinkedIn rose $1.4 billion or 9% across all lines of business. Dynamics rose $996 million or 15%, with Dynamics 365 up 19%.

Intelligent Cloud revenue rose $18.8 billion or 21%; operating income rose $6.8 billion or 18%. Server products and cloud services rose $18.6 billion or 23%, with Azure and other cloud services up 34%; Server products revenue declined 3% on lower transactional purchasing as customers shifted to cloud. Enterprise and partner services rose $166 million or 2%. Segment cost of revenue rose $10.6 billion or 36% on Azure growth and gross margin percentage decreased on AI infrastructure scaling.

More Personal Computing revenue rose $3.8 billion or 7%; operating income rose $2.2 billion or 18%. Windows and Devices rose $288 million or 2%. Gaming rose $2.0 billion or 9%, Xbox content and services +16% on Activision Blizzard and Game Pass, offset by Xbox hardware −25% on lower console volume. Search and news advertising rose $1.6 billion or 13% (+20% excluding traffic acquisition costs) on higher search volume and revenue per search. Gross margin percentage improved across all businesses.

Geographic split: United States $144.5 billion, other countries $137.2 billion. No individual customer or country other than the United States accounted for more than 10% of revenue.

Taxes, liquidity, and capital returns

The effective tax rate was 18% in both fiscal 2025 and 2024, below the U.S. statutory rate primarily because of earnings taxed at lower rates through the Ireland regional operations center. U.S. income before income taxes was $69.2 billion and foreign income $54.4 billion in fiscal 2025 (versus $62.9 billion and $44.9 billion in fiscal 2024). The One Big Beautiful Bill Act, enacted July 4, 2025, provides a 14% U.S. GILTI effective rate for Microsoft beginning fiscal 2027, bonus depreciation for certain assets placed in service after January 19, 2025, and an election to expense U.S. research or experimental expenditures.

Cash, cash equivalents, and short-term investments totaled $94.6 billion at June 30, 2025 versus $75.5 billion a year earlier; equity and other investments were $15.4 billion versus $14.6 billion. Cash from operations rose $17.6 billion to $136.2 billion. Cash used in investing fell $24.4 billion to $72.6 billion, a $63.2 billion decrease in acquisition spending was partly offset by a $22.3 billion increase in net investment purchases and a $20.1 billion increase in additions to property and equipment (capital expenditures of $64.6 billion in fiscal 2025 versus $44.5 billion in 2024 and $28.1 billion in 2023). Cash used in financing rose $13.9 billion to $51.7 billion, largely on a $9.5 billion increase in net debt repayments.

At June 30, 2025 construction commitments were $32.1 billion and purchase commitments $110.0 billion, the latter relating primarily to datacenters and including take-or-pay contracts. The eighth and final Tax Cuts and Jobs Act transition tax installment of $4.4 billion was short-term and payable in the first quarter of fiscal 2026.

Microsoft repurchased 31 million shares for $13.0 billion in fiscal 2025 (32 million shares for $12.0 billion in fiscal 2024), with $57.3 billion remaining of the $60 billion program at year end. Dividends declared totaled $24.7 billion versus $22.3 billion.

Critical accounting estimates centre on revenue recognition (distinct performance obligations and standalone selling price, Office 365 is treated as a single performance obligation recognized ratably), impairment of investment securities, goodwill (tested annually on May 1 using discounted cash flow), R&D cost capitalization at technological feasibility, legal contingencies, and income taxes.

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Current quarter, fiscal Q3 2026 (quarter ended March 31, 2026)

From the Form 10-Q for the quarter ended March 31, 2026, accession 0001193125-26-191507.

Results

Quarterly highlights versus the year-ago quarter: Microsoft Cloud revenue +29% to $54.5 billion; commercial remaining performance obligation +99% to $627 billion; Microsoft 365 Commercial cloud +19%; Microsoft 365 Consumer cloud +33%; LinkedIn +12%; Dynamics 365 +22%; Azure and other cloud services +40%; Windows OEM and Devices −2%; Xbox content and services −5%; Search advertising (formerly Search and news advertising) ex-TAC +12%.

Revenue rose $12.8 billion or 18% on Microsoft Cloud growth. Cost of revenue rose $4.9 billion or 22%. Gross margin rose $7.9 billion or 16%, but gross margin percentage decreased on continued AI infrastructure investment and growing AI product usage, offset in part by efficiency gains across Microsoft Cloud. Microsoft Cloud gross margin percentage fell to 66% for the quarter (67% for the nine months), from 69% in fiscal 2025, the clearest single indicator of the margin cost of the AI build-out. Operating expenses rose $1.5 billion or 9%, driven by R&D compute capacity, AI talent, and data; total company headcount declined year over year. Operating income rose $6.4 billion or 20%. Foreign currency was a tailwind: +3% to revenue, +3% to gross margin, +4% to operating income (−2% on cost of revenue).

Segment results

Productivity and Business Processes revenue rose $5.1 billion or 17% and operating income $3.6 billion or 21%. Microsoft 365 Commercial cloud grew 19%, driven by revenue per user from Microsoft 365 E5 and Microsoft 365 Copilot, with commercial seats up 6% (small and medium businesses, frontline workers); Microsoft 365 Commercial products grew only 1%. Microsoft 365 Consumer products and cloud services rose $476 million or 26% (consumer cloud +33%, subscribers +7%). LinkedIn rose $521 million or 12%. Dynamics rose $363 million or 19%, with Dynamics 365 up 22%. Notably, segment gross margin percentage increased slightly on Microsoft 365 Commercial cloud efficiency gains despite AI infrastructure investment.

Intelligent Cloud revenue rose $7.9 billion or 30% and operating income $2.7 billion or 24%. Server products and cloud services rose $7.8 billion or 32%, with Azure and other cloud services up 40% on demand across all workloads. Server products revenue increased slightly, driven by higher purchases of licenses running in multi-cloud environments and partly offset by renewals with lower in-period revenue recognition and continued cloud migration. Enterprise and partner services rose $141 million or 7%. Segment cost of revenue rose $4.8 billion or 47% on AI infrastructure to support customer demand and increased GitHub Copilot usage, and segment gross margin percentage decreased.

More Personal Computing revenue fell $179 million or 1%, while operating income rose $146 million or 4% on mix shift to higher-margin businesses. Windows and Devices revenue fell $103 million or 2%: Devices declined, partly offset by Windows OEM growth as OEM partners built inventory ahead of increasing memory pricing. Gaming fell $380 million or 7%, Xbox hardware −33% on lower console volume, Xbox content and services −5% against a prior year that benefited from strong first-party content. Search advertising rose $304 million or 9% (+13% ex-TAC) on higher search volume, higher revenue per search, and third-party partnerships. Segment operating expenses rose 7%, including impairment and other related expenses in the Gaming business (also cited in the nine-month R&D and consolidated operating expense commentary; the filing does not quantify the charge separately).

OpenAI restructuring and its earnings effect

In October 2025 Microsoft signed a new definitive agreement with OpenAI extending the partnership. OpenAI formed a public benefit corporation and completed a recapitalization (the "OpenAI Recapitalization"). Microsoft holds an investment of approximately 27% of OpenAI on an as-converted basis, accounted for under the equity method using the hypothetical liquidation at book value method because its liquidation rights and priorities differ from its underlying ownership interest. The recapitalization reduced Microsoft's proportionate ownership and produced a dilution gain recorded in other income (expense), net. Microsoft has made total funding commitments of $13 billion, of which $11.8 billion had been funded as of March 31, 2026.

Other income (expense), net included $19 million of net losses in the quarter and $5.9 billion of net gains for the nine months from investments in OpenAI (versus $768 million and $2.7 billion of net losses in the prior-year periods), with the nine-month gain relating primarily to the recapitalization dilution gain. Net of tax, OpenAI reduced quarterly net income by $14 million and increased nine-month net income and diluted EPS by $4.5 billion and $0.60. Microsoft now presents adjusted net income and adjusted diluted EPS (non-GAAP) excluding net gains and losses from OpenAI investments. The MD&A states the partnership was extended in both October 2025 and April 2026, that Microsoft remains a major investor and "will continue to receive revenue-sharing payments," and that it holds rights to OpenAI's intellectual property including models and infrastructure.

Balance sheet, cash flow, and capital intensity

Total assets grew to $694.2 billion at March 31, 2026 from $619.0 billion at June 30, 2025, almost entirely on property and equipment, net, which rose to $283.2 billion from $205.0 billion. Gross PP&E at cost reached $395.0 billion; servers, network equipment, and software alone rose to $190.9 billion from $132.8 billion, and buildings and improvements to $172.3 billion from $137.9 billion. Depreciation expense was $9.0 billion for the quarter and $24.0 billion for the nine months, versus $5.8 billion and $15.7 billion a year earlier. Purchases of property and equipment still sitting in accounts payable jumped to $22.6 billion from $6.9 billion.

Additions to property and equipment were $30.9 billion in the quarter and $80.1 billion for the nine months, versus $16.7 billion and $47.5 billion a year earlier. Cash from operations rose $34.0 billion to $127.5 billion for the nine months. Cash used in investing rose $42.6 billion to $84.7 billion, driven by the $32.7 billion increase in capital expenditures, a $9.1 billion increase in other investing primarily to facilitate the purchase of components, and a $3.8 billion decrease in cash from net investment activity. Cash used in financing was roughly flat at $40.8 billion.

Cash, cash equivalents, and short-term investments declined to $78.3 billion from $94.6 billion at June 30, 2025, while equity and other investments rose to $33.7 billion from $15.4 billion. Other receivables related to activities to facilitate the purchase of server components more than doubled to $17.8 billion from $8.2 billion, and as of March 31, 2026 Microsoft held $11.5 billion of restricted investments pursuant to a supplier agreement ($2.8 billion in short-term investments, $8.7 billion in equity and other investments), disclosures that did not exist at fiscal year end and that reflect the scale of the compute supply chain commitment.

Total debt fell to $40.3 billion from $43.2 billion, with $8.8 billion now in the current portion; total face value of long-term debt is $46.2 billion with $9.25 billion maturing in fiscal 2027, $2.0 billion in fiscal 2029, and $34.9 billion thereafter. Operating lease right-of-use assets were $24.4 billion. Lease cost is rising sharply with the datacenter footprint: nine-month operating lease cost of $5.2 billion (from $3.9 billion) and total finance lease cost of $5.7 billion (from $3.4 billion), including $1.8 billion of interest on finance lease liabilities. Other long-term liabilities rose to $61.5 billion from $45.2 billion. Total stockholders' equity was $414.4 billion.

Unearned revenue fell to $53.7 billion from $67.3 billion (a normal intra-year seasonal pattern given the fiscal-Q4-weighted contract calendar): $143.4 billion deferred and $157.0 billion recognized over the nine months. Total remaining performance obligations were $633 billion at March 31, 2026, of which the commercial portion was $627 billion with a weighted average duration of approximately 2.5 years; Microsoft expects to recognize approximately 30% of total and 25% of commercial RPO over the next twelve months.

Taxes, litigation, and capital returns

The effective tax rate was 19% for the quarter and 20% for the nine months, versus 18% in both prior-year periods; the increase reflects earnings mix between the U.S. and foreign countries plus deferred tax expense attributable to the OpenAI Recapitalization dilution gain. Unrecognized tax benefits and other income tax liabilities rose to $29.3 billion from $27.4 billion. The IRS matters are unchanged: audit of tax years 2014–2017 continues, and the 2004–2013 NOPAs seeking $28.9 billion plus penalties and interest remain contested with no resolution expected within twelve months.

On contingencies, the Irish Data Protection Commission's LinkedIn GDPR matter, final decision and fine issued October 2024, appealed by LinkedIn in November 2024, had a preliminary hearing in December 2025. Aggregate accrued legal liabilities were $647 million at March 31, 2026, with reasonably possible adverse outcomes of approximately $400 million beyond recorded amounts.

Microsoft repurchased 27 million shares for $13.3 billion over the nine months (23 million for $9.8 billion a year earlier), with $44.0 billion remaining of the $60.0 billion program approved September 16, 2024, which commenced in April 2025 after the prior $60 billion program completed. Dividends declared totaled $20.3 billion for the nine months versus $18.5 billion. Total capital returned in the quarter was $10.2 billion. The quarterly dividend rose to $0.91 per share from $0.83.

No individual customer or country other than the United States accounted for more than 10% of revenue in either period.

Reading the quarter

The through-line is that Microsoft is converting an enormous, debt-light balance sheet into physical AI capacity at a pace that is reshaping its financial profile. Revenue growth accelerated to 18% and operating income to 20%, with Azure at 40% and commercial RPO nearly doubling to $627 billion, evidence of demand that is contracted, not merely hoped for. The cost shows up in three places: Microsoft Cloud gross margin percentage down to 66%, depreciation up 55% year over year to $9.0 billion in the quarter, and nine-month capital expenditure of $80.1 billion consuming roughly two-thirds of $127.5 billion of operating cash flow while the liquid cash balance fell $16 billion. Operating leverage is being defended on the expense line instead, operating expenses grew only 9% and total headcount declined year over year. More Personal Computing is the soft spot: revenue slightly down, Gaming down 7% with an unquantified impairment charge, and Windows OEM strength attributed to partners building inventory ahead of memory price increases rather than to end demand.

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Subsequent events

Neither the Form 10-Q for the quarter ended March 31, 2026 (accession 0001193125-26-191507) nor the FY2025 Form 10-K (accession 0000950170-25-100235) contains a separate subsequent-events note; the notes to financial statements in the 10-Q run from Note 1 (Accounting Policies) through Note 16 (Segment Information and Geographic Data), and in the 10-K from Note 1 through Note 18. No post-period acquisition, divestiture, financing, or litigation settlement is disclosed as a subsequent event in either filing. The material post-period items that are disclosed, in the 10-Q itself and in Current Reports on Form 8-K filed after the quarter closed, are:

• Further extension of the OpenAI partnership in April 2026. The 10-Q's Industry Trends

and Opportunities discussion states that the OpenAI partnership was extended in "October 2025 and April 2026", the April extension falling after the March 31, 2026 quarter end and before the April 29, 2026 filing date. The filing gives no financial terms for the April 2026 extension; it restates only that Microsoft remains a major investor, will continue to receive revenue-sharing payments, and holds rights to OpenAI's intellectual property including models and infrastructure. As of March 31, 2026 Microsoft's funding commitments to OpenAI totaled $13 billion, of which $11.8 billion had been funded.

• Dividend payable after quarter end. A quarterly dividend of $0.91 per share, or $6.76

billion, was declared March 10, 2026 with a record date of May 21, 2026 and a payment date of June 11, 2026.

• Board appointment (Form 8-K filed May 14, 2026, accession 0001193125-26-224155). The

Board of Directors appointed Carmine Di Sibio as a director effective May 13, 2026. He receives the same compensation as other non-employee directors, there is no arrangement or understanding with other persons pursuant to which he was selected, he has no direct or indirect material interest in any Item 404(a) transaction, and he will enter into Microsoft's standard director indemnification agreement.

• Board departure (Form 8-K filed June 5, 2026, accession 0001193125-26-258667). On

June 2, 2026, Reid Hoffman, a director since 2017, informed the company that he will not stand for re-election at the 2026 annual shareholder meeting. He will continue to serve until that meeting. The company states the decision is not the result of any disagreement with management on any matter relating to operations, policies, or practices.

• Insider trading arrangement with post-period effect. On March 8, 2026, CEO and Chairman

Satya Nadella adopted a new Rule 10b5-1 trading plan with a maximum duration to September 4, 2026, under which the first trade will not occur before August 31, 2026 and he will sell 80% of net vested shares upon the August 31, 2026 vesting of a performance stock award. No other Section 16 officers or directors adopted, modified, or terminated a trading arrangement during the quarter.

• Equity plan. The Microsoft Corporation 2026 Stock Plan, approved by shareholders at the

December 5, 2025 annual meeting and replacing the 2017 Stock Plan in its entirety, was filed as an exhibit to the fiscal Q3 2026 10-Q, along with the related form of stock award agreement, the Executive Incentive Plan, and the Deferred Compensation Plan for Non-Employee Directors.