Microsoft has reported a net income of $31.8bn for the quarter ending 31 March 2026 (Q3 FY26), reflecting a 23% increase from the same period last year.
The diluted earnings per share (EPS) also rose by 23% to $4.27. The company’s revenue for the quarter reached $82.9bn, marking an increase of about 18% compared to revenue of $70bn in Q3 FY25.
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Operating income for Q3 FY26 was $38.4bn, a 20% increase year-over-year.
Microsoft Cloud revenue surged by 29% to $54.5bn, while the commercial remaining performance obligation surged by 99% to $627bn. The AI business achieved an annual revenue run rate of $37bn, up 123% year-over-year.
In the Productivity and Business Processes segment, revenue increased by $5.1bn or 17%.
Microsoft 365 Commercial products and cloud services revenue rose by $3.7bn or 17%, with Microsoft 365 Commercial cloud revenue growing 19%. This growth was driven by an increase in revenue per user, particularly through Microsoft 365 E5 and Microsoft 365 Copilot.
Microsoft 365 Commercial seats grew by 6%, driven by small and medium businesses and frontline worker offerings. Microsoft 365 Consumer products and cloud services revenue increased by $476m or 26%, with a 33% growth in Microsoft 365 Consumer cloud revenue.
LinkedIn revenue increased by $521m or 12%, and Dynamics products and cloud services revenue rose by $363m or 19%, driven by a 22% growth in Dynamics 365.
The Intelligent Cloud segment reported a 30% increase in revenue, totalling $34.7bn. Server products and cloud services revenue increased by $7.8bn or 32%, driven by a 40% growth in Azure and other cloud services.
Enterprise and partner services revenue increased by $141m or 7%. Operating income for this segment increased by $2.7bn or 24%.
The cost of revenue rose by 47% due to investments in AI infrastructure to support growing customer demand and increased GitHub Copilot usage. Despite these investments, gross margin increased by $3.1bn or 19%, driven by growth in Azure, although the gross margin percentage decreased slightly.
The More Personal Computing segment experienced a slight decline of 1% in revenue, amounting to $13.2bn. Within this segment, Windows and Devices revenue decreased by $103m or 2%, and Gaming revenue fell by $380m or 7%.
Xbox content and services revenue decreased by 5%, while Xbox hardware revenue dropped by 33%. However, search advertising revenue increased by $304m or 9%, with a 12% increase excluding traffic acquisition costs.
Operating income for this segment increased by $146m or 4%, with a decrease in the cost of revenue by 10% primarily due to lower hardware sales.
The quarter’s results included favourable foreign currency impacts on revenue, gross margin, and operating income, with respective impacts of 4%, 5%, and 7%.
Microsoft’s Q3 FY26 operating expenses included an unfavourable foreign currency impact of 2%. Investments in AI infrastructure and talent, as well as research and development, were key drivers of increased operating expenses across segments.
Microsoft chairman and CEO Satya Nadella said: “We are focused on delivering cloud and AI infrastructure and solutions that empower every business to eval-max their outcomes in the agentic computing era.
“Our AI business surpassed an annual revenue run rate of $37bn, up 123% year-over-year.”
For Q4 FY26, Microsoft forecasts total company revenue of $86.7–$87.8bn, with segment revenue of $37.0–$37.3bn for Productivity and Business Processes, $37.95–$38.25bn for Intelligent Cloud, and $11.75–$12.25bn for More Personal Computing.
Foreign exchange is expected to add less than one percentage point to total revenue growth, largely benefiting Productivity and Business Processes and More Personal Computing, with no meaningful impact on Intelligent Cloud.
Cost of revenue (COGS) is guided at $29.4–$29.6bn, while operating expenses are expected to be $19.3–$19.4bn. Other income and expense is anticipated to be roughly $(100)m, and the effective tax rate is expected to be about 19%, both excluding any impact from investments in OpenAI.
Microsoft’s capital expenditure for Q4 FY26 is projected to rise to over $40bn.
Recently, Microsoft amended its partnership deal with OpenAI, removing exclusivity rights that previously allowed Redmond to be the sole distributor of the AI models developed by the ChatGPT maker.
