Executive Summary
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.
Key Performance Indicators
Key Insights
Revenue: $77.673B, YoY +20.0%, QoQ +10.86%
CostoOfRevenue: $24.043B
GrossProfit: $53.63B, Gross Margin 69.04%
OperatingExpense: $39.712B (incl. R&D $8.146B, G&A $1.806B, Selling/Marketing $5.713B; SG&A $7.523B)
Operating Income: $37.961B, Operating Margin 48.87%
TotalOtherIncome/ExpensesNet: −$3.66B
IncomeBeforeTax: $34.301B, Pre-Tax Margin 44.16%
IncomeTaxExpense: $6.554B
NetIncome: $27.747B, Net Margin 35.72%
EPS (Diluted): $3.72
WeightedAverageShsOut (diluted): 7.466B
CashFlow f...
Financial Highlights
Revenue: $77.673B, YoY +20.0%, QoQ +10.86%
CostoOfRevenue: $24.043B
GrossProfit: $53.63B, Gross Margin 69.04%
OperatingExpense: $39.712B (incl. R&D $8.146B, G&A $1.806B, Selling/Marketing $5.713B; SG&A $7.523B)
Operating Income: $37.961B, Operating Margin 48.87%
TotalOtherIncome/ExpensesNet: −$3.66B
IncomeBeforeTax: $34.301B, Pre-Tax Margin 44.16%
IncomeTaxExpense: $6.554B
NetIncome: $27.747B, Net Margin 35.72%
EPS (Diluted): $3.72
WeightedAverageShsOut (diluted): 7.466B
CashFlow from Operations: $45.057B
CapitalExpenditures: $19.394B
Free Cash Flow: $25.663B (FCF Margin ~33%)
Cash and Short-Term Investments: $102.012B
Total Debt: $60.556B
NetDebt (reported): $31.707B (note: accounting presentation may imply a net cash position; the data contains a discrepancy between cash balance and reported net debt in the provided figures)
CurrentAssets: $189.066B, Current Liabilities: $134.996B, Current Ratio ~1.40
Deferred Revenue: $58.987B
Dividends Paid: $6.169B, Common Stock Repurchased: $5.65B; Net cash used for financing activities: $11.799B
Backlog/Deferred Revenue signal long-term revenue visibility across Subscription-based products.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
77.67B |
20.00% |
10.86% |
| Gross Profit |
53.63B |
19.06% |
11.39% |
| Operating Income |
37.96B |
35.94% |
18.63% |
| Net Income |
27.75B |
25.92% |
7.45% |
| EPS |
3.73 |
26.01% |
7.49% |
Management Commentary
Management commentary (paraphrased) centers on: (1) Cloud leadership and AI integration as a primary growth driver, with Azure and enterprise AI solutions advancing multi-year adoption in large segments; (2) Margin expansion driven by mix shift toward high-margin Cloud/SaaS offerings and disciplined operating spend; (3) Balance sheet resilience and substantial FCF enabling continued capital returns and strategic investments in AI capabilities, security, and developer tools; (4) Focus on developer and partner ecosystems (GitHub, Nuance, and related AI-enabled services) to reinforce platform stickiness and cross-sell opportunities; (5) Risks acknowledged include competition in cloud (AWS, Alphabet), ongoing macro volatility, FX effects, and regulatory considerations related to AI and data governance.
Forward Guidance
No explicit numeric quarterly or annual guidance was provided in the data. The qualitative outlook indicates continued emphasis on Azure cloud growth, AI-enabled offerings (Copilot-like integrations across Office 365 and Azure AI services), and ongoing cost discipline to support margin resilience amid revenue growth. Key factors investors should monitor include: (a) Azure/Intelligent Cloud growth trajectory relative to hyperscale peers, (b) pricing and unit economics of AI-enabled services, (c) backlog evolution and deferred revenue stability, (d) capital allocation decisions (dividends, buybacks, and potential acquisitions), and (e) regulatory developments affecting AI and cloud privacy/security. Given the strong FCF generation and a substantial cash position, management appears positioned to sustain cadence of shareholder returns while funding AI-enabled growth initiatives.