Executive Summary
Microsoft delivered a solid QQ1 2026 performance, underscored by durable top-line growth and strong cash generation. Revenue reached $77.67 billion, up 20% year over year and 10.9% quarter over quarter, with gross margin of approximately 69.0% and operating margin near 48.9%. Net income totaled $27.75 billion and EPS was $3.73, supported by a robust operating cadence and favorable mix across the company’s three-pillar model (Productivity and Business Processes, Intelligent Cloud, and More Personal Computing).
The quarter highlighted sustained demand for cloud and AI-enabled solutions, aided by Azure and related services, as well as continued strength in productivity tools and LinkedIn/Nuance extensions. Free cash flow stood at about $25.66 billion, with cash from operations of $45.06 billion. Microsoft maintained a strong balance sheet with total cash and short-term investments of roughly $102.0 billion and a net debt position of about $31.7 billion, reflecting disciplined capital allocation: approximately $5.65 billion in share repurchases and $6.17 billion in dividends.
Looking ahead, management signaled ongoing investments in AI, cloud services, and enterprise software, complemented by a steady capital return program. While macro uncertainty and competition in cloud infrastructure remain relevant risks, Microsoft’ s scale, product breadth, and cash-generative ability position it well to extend revenue growth and margin resilience as AI-enabled solutions mature across enterprise workloads.
Key Performance Indicators
Key Insights
Revenue: $77.673B (YoY +20.0%; QoQ +10.86%).
Gross Profit: $53.63B; Gross Margin 69.05% (YoY +19.06%; QoQ +11.39%).
Operating Income: $37.962B; Operating Margin 48.87% (YoY +35.94%; QoQ +18.63%).
Net Income: $27.747B; Net Margin 35.72% (YoY +25.92%; QoQ +7.45%).
EPS (Diluted): $3.72; Reported EPS $3.73 (YoY +26.01%; QoQ +7.49%).
EBITDA: $48.06B; EBITDA Margin ~62%.
Free Cash Flow: $25.66B; FCF Margin ~33.0% of revenue.
Cash Flow and Liquidity: Net cash from operating activities $45.06B; Capex $1...
Financial Highlights
Revenue: $77.673B (YoY +20.0%; QoQ +10.86%).
Gross Profit: $53.63B; Gross Margin 69.05% (YoY +19.06%; QoQ +11.39%).
Operating Income: $37.962B; Operating Margin 48.87% (YoY +35.94%; QoQ +18.63%).
Net Income: $27.747B; Net Margin 35.72% (YoY +25.92%; QoQ +7.45%).
EPS (Diluted): $3.72; Reported EPS $3.73 (YoY +26.01%; QoQ +7.49%).
EBITDA: $48.06B; EBITDA Margin ~62%.
Free Cash Flow: $25.66B; FCF Margin ~33.0% of revenue.
Cash Flow and Liquidity: Net cash from operating activities $45.06B; Capex $19.39B; Free Cash Flow $25.66B; Cash and equivalents $28.85B; Short-term investments $73.16B; Total cash and investments $102.01B.
Balance Sheet: Total assets $636.35B; Total liabilities $273.28B; Total stockholders’ equity $363.08B; Cash & cash equivalents $28.85B; Long-term debt $52.72B; Short-term debt $7.83B; Net debt $31.71B.
Capital Allocation: Common stock repurchased $5.65B; Dividends paid $6.17B; Net financing cash flow negative $11.80B; Net change in cash: -$1.39B.
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
Themes from the earnings call:
- Cloud and AI Momentum: Management emphasized that cloud platforms and AI-driven solutions remain the primary engine for durable growth, with continued emphasis on Azure and enterprise AI deployments across verticals.
- Margin and Efficiency: Leadership highlighted ongoing focus on operating leverage, cost discipline, and the role of AI-enabled productivity gains in supporting margin resilience even as investments in AI and cloud infrastructure persist.
- Capital Allocation and Shareholder Value: Executives reiterated a disciplined capital return program, balancing significant buybacks with consistent dividend growth, alongside strategic investments in product innovation and ecosystem partnerships.
AI and cloud are central to our growth strategy, with Copilot and AI-enabled offerings accelerating value for customers and expanding our addressable market in enterprise software and services.
— Satya Nadella
We will continue to balance significant investments in AI and platform development with disciplined capital allocation, aiming to sustain durable operating margins and strong free cash flow through the cycle.
— Amy Hood
Forward Guidance
No formal numeric guidance was issued for QQ2 2026 in the press release or call transcripts. Nevertheless, the longer-term outlook remains constructive given the persistent demand for cloud infrastructure, AI-enabled software, and productivity tools. Key factors to monitor include: Azure growth momentum and mix shift toward higher-margin cloud services; adoption and monetization of AI offerings (Copilot and related enterprise AI solutions); enterprise IT spending cycles; potential incremental margin benefits from cloud operating leverage; and the pace of capital returns (dividends and share repurchases) in the context of macro volatility.