Microsoft has reported a 60% increase in net income for the second quarter of fiscal year 2026 (Q2 FY26), reaching $38.5bn on a GAAP basis, compared to $24.1bn in the same quarter last year.

On a non-GAAP basis, net income for the quarter ending 31 December 2025, was $30.9bn, reflecting a 23% increase from $25bn.

The reported quarter’s revenue totalled $81.3bn, representing a 17% year-over-year (YoY) growth from $69.6bn, or 15% when adjusted for constant currency.

Operating income increased by 21% to $38.3bn, up from $31.7bn.

Diluted earnings per share (EPS) on a GAAP basis rose by 60% to $5.16, compared to $3.23, while the non-GAAP EPS increased by 24% to $4.14 from $3.35.

A significant contributor to this growth was Microsoft’s cloud segment, which generated $51.5bn in revenue, a 26% increase from the previous year. The commercial remaining performance obligation (RPO) surged by 110% to $625bn.

In the Productivity and Business Processes division, revenue rose to $34.1bn, a 16% increase from $29.4bn. This includes a 17% growth in Microsoft 365 commercial cloud revenue and a 29% rise in consumer cloud revenue.

LinkedIn and Dynamics 365 also saw revenue increases of 11% and 19%, respectively.

The Intelligent Cloud segment reported a 29% revenue increase to $32.9bn, up from $25.5bn, with Azure and other cloud services experiencing a 39% rise. Conversely, the More Personal Computing division saw a slight revenue decline to $14.3bn from $14.7bn, primarily due to a 5% reduction in Xbox content and services revenue.

During Q2 FY26, Microsoft returned $12.7bn to shareholders through dividends and share repurchases, a 32% increase over the previous year.

Microsoft executive vice president and chief financial officer Amy Hood said: “Microsoft Cloud revenue crossed $50bn this quarter, reflecting the strong demand for our portfolio of services.

“We exceeded expectations across revenue, operating income, and earnings per share.”

In the Q2 FY26 earnings call, Microsoft emphasised the growing demand for AI-driven solutions alongside continued infrastructure investments.

Microsoft chairman and CEO Satya Nadella reported that Microsoft Cloud revenue exceeded $50bn for the first time. He described the quarter as early in the “AI diffusion” cycle, which is expected to expand Microsoft’s market across the stack. Nadella outlined progress in three areas, which include “Cloud & Token Factory,” an “agent platform,” and “high value agentic experiences.”

He noted a 50% throughput gain in OpenAI inferencing workloads and described new “Fairwater” datacentres connected by an AI WAN. Microsoft added nearly one gigawatt of capacity during the quarter and advanced its silicon technology with the Maia 200 accelerator and Cobalt 200 CPU, in partnership with Nvidia and AMD. Nadella also mentioned new datacentre investments in seven countries.

On the platform side, Nadella positioned “agents as the new apps,” highlighting model choices in Foundry, including GPT 5.2 and Claude 4.5, and the momentum in Foundry Knowledge and Fabric.

Fabric’s annual revenue run rate surpassed $2bn with over 31,000 customers. Microsoft also introduced Agent 365 during the second quarter for cross-cloud governance and security.

Nadella said: “We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises.

“We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.”

Last month, Microsoft revealed plans to invest $17.5bn in India, with the funds to be allocated from 2026 to 2029. The investment is intended to enhance India’s cloud and AI infrastructure, provide workforce training, and broaden existing operations.