Microsoft reported Q1 2026 revenue of $77.673 billion, up 20% year over year and 10.86% quarter over quarter, underscoring sustained demand across its cloud, productivity, and Windows ecosystems. The gross margin stood at 69.04%, yielding a gross profit of $53.63 billion. Operating income reached $37.96 billion with an operating margin of 48.87%, while net income was $27.75 billion (net margin 35.72%) and diluted EPS of $3.72–$3.73. Free cash flow (FCF) was $25.66 billion, representing approximately 33% of revenue, with operating cash flow of $45.06 billion and capital expenditures of $19.39 billion. Cash generation remains a core strength, supporting a substantial liquidity cushion and ongoing capital returns to shareholders.
Strategically, the results reflect Microsoft’s multi-segment durability (Productivity and Business Processes, Intelligent Cloud, and More Personal Computing), a favorable mix toward high-margin cloud offerings, and continued efficiency gains. The company’s balance sheet shows a strong asset base and ample liquidity (cash and short-term investments around $102 billion against net debt near zero to modestly negative, depending on reporting interpretation). Deferred revenue sits at a material $58.99 billion, signaling durable future revenue from subscriptions and long-term contracts.
Management commentary, supported by the quarterly metrics, reinforces a continued emphasis on cloud expansion, AI integration (including Azure and enterprise AI offerings), and managed cost discipline. The combination of robust FCF generation and a disciplined capital-allocation strategy (dividends plus share repurchases) supports a constructive long-term investment thesis. Risks include competition from AWS and Google Cloud, potential macro softness affecting enterprise IT budgets, FX volatility, and regulatory developments surrounding AI and data usage.