MSFT earnings analysis
What we found in MSFT's 10-K: the parts that mattered, the offsets in the same document, and what the company said about what comes next.
Our reading of the filing · Free to read, no account needed
Microsoft’s FY26 10-K shows a cloud-and-AI-led acceleration: revenue rose 18% to $331.839B and Intelligent Cloud grew 30%, led by 41% Azure growth. The strategic positioning centers on its broad platform ecosystem, distribution through Microsoft 365 and Azure, and extending AI capabilities—including OpenAI technology—throughout the portfolio. The trade-off is a sharp capital-intensity inflection: property-and-equipment additions increased to $115.948B and noncommenced datacenter lease commitments reached $329.1B, pressuring near-term free cash flow and raising execution risk. More Personal Computing remained a weak spot, with segment revenue down 1% as XBOX revenue declined 7%.
The parts that mattered.
Pulled out of the filing itself, with the figures the company reported.
- Cloud-led revenue and profit acceleration
- FY26 revenue rose 18% to $331.839B, operating income increased 21% to $155.237B, and operating margin expanded to 46.8% from 45.6%. The three-year revenue trajectory was $245.122B in FY24, $281.724B in FY25, and $331.839B in FY26.
- Azure growth and backlog strengthen visibility
- Intelligent Cloud was the principal growth engine: revenue rose 30% to $137.791B, while Azure and other cloud services grew 41%. Commercial remaining performance obligations increased 84% to $678B, with an approximately 2.3-year weighted-average duration.
- Platform ecosystem and AI roadmap
- Microsoft describes its moat as platform ecosystems that create network effects among users, application developers, and the platform provider. It is embedding AI across its offerings, holds rights to OpenAI intellectual property for product integration, and extended its OpenAI partnership in October 2025 and April 2026.
- Copilot monetization supports productivity suite
- Productivity and Business Processes revenue rose 16% to $139.996B. Microsoft 365 Commercial cloud revenue grew 17%, with revenue per user aided by Microsoft 365 Copilot and E5; commercial seats increased 6%.
- Operating cash flow surged despite AI buildout
- Cash from operations increased $46.773B to $182.935B. Even after $115.948B of property-and-equipment additions, free cash flow was approximately $66.987B, versus approximately $71.611B in FY25, marking a capex-driven FCF inflection.
- Underlying EPS growth outpaces reported noise
- Reported diluted EPS rose from $11.80 in FY24 to $13.64 in FY25 and $17.95 in FY26. Underlying adjusted EPS rose 18% to $14.13 in FY25 and 22% to $17.28 in FY26; FY26 GAAP EPS included a $0.67 benefit from OpenAI investment gains.
And the other side of it.
The offsets in the same document — the things a summary that only listed the good news would have left out.
- AI infrastructure commitments raise return risk
- AI/cloud investment is scaling ahead of fully developed revenue streams: FY26 property-and-equipment additions rose 80% to $115.948B, finance-lease liabilities reached $66.594B, and additional datacenter leases not yet commenced totaled $329.1B. The filing warns that slower AI adoption, lower Azure workload consumption, or higher inference, component, and energy costs could impair returns and margins.
- Power and supply constraints may cap cloud growth
- Datacenter expansion now faces explicit power, permitting, and local-opposition constraints. Microsoft has $34.566B of construction commitments and $194.060B of purchase commitments, principally for datacenters; inability to secure power, GPUs, networking, cooling, land, or permits could delay capacity and reduce sales.
- Large unresolved IRS transfer-pricing exposure
- The IRS is seeking an additional $28.9B in tax for 2004–2013 transfer-pricing issues, plus penalties and interest. Microsoft is contesting the notices; separately, gross unrecognized tax benefits rose to $25.831B from $24.729B.
What they reported.
What the company itself reported, taken out of the document.
- Earnings per share
- $17.95
- Gross margin
- 67.94%
- Operating margin
- 46.78%
- Segment
- Productivity and Business Processes: $139.996B revenue, +16% YoY; $83.879B operating income.
- Segment
- Intelligent Cloud: $137.791B revenue, +30% YoY; $56.972B operating income.
- Segment
- More Personal Computing: $54.052B revenue, -1% YoY; $14.386B operating income.
What they said about what is next.
The 10-K provides no quantitative fiscal 2027 revenue or EPS outlook. Management says it expects cash, investments, operating cash flow, and capital-market access to fund operations, capital expenditures, dividends, repurchases, debt maturities, and other commitments for at least the next 12 months.
The filing reads better than the one before it.
What came before.
- 10-Q · April 29, 2026
- Microsoft's Q3 FY2026 results demonstrated robust performance with a revenue of $82.9 billion, exceeding estimates by $1.48 billion, and a diluted EPS of $4.27, surpassing the consensus estimate of $4.07. Cloud-related…
- 10-Q · January 28, 2026
- Microsoft reported revenue of $81.273 billion in Q2 FY2026, up 17% year-over-year, with diluted EPS of $5.16, up 60% Y/Y (benefitting from net gains on OpenAI investments). Growth was led by Microsoft Cloud (revenue…
- 10-Q · October 29, 2025
- Microsoft reported quarterly revenue of $77,673 million, up $12,088 million or 18% year-over-year, driven by strong Cloud and Microsoft 365 performance. GAAP diluted EPS was $3.72 (up 13%) and adjusted diluted EPS…
- 10-K · July 30, 2025
- Microsoft delivered a strong fiscal 2025 with total revenue up 15% to $281,724 million and diluted EPS up 16% to $13.64, driven by 23% growth in Microsoft Cloud to $168.9 billion and broad-based segment growth. The…
This is our reading of a public filing, not the filing. Read the original on SEC.gov · Educational only. Nothing here is investment advice.
Read the next one first.
We read every filing MSFT makes the day it lands, and put it next to what the options market did about it. Members get both, and an alert when a filing arrives.
Cancel anytime · Month to month · Switch tiers whenever