Highlights
- Microsoft reported $81.3 billion in Q2 FY2026 revenue, driven by record cloud growth.
- Xbox hardware revenue fell 32% as the company pivots to a cross-platform strategy.
- Windows 11 hit 1 billion users while AI capital expenditure topped $37.5 billion.
Microsoft has delivered a powerhouse performance for the second quarter of fiscal year 2026, posting $81.3 billion in revenue and a net income of $30.9 billion. Despite a cooling console market and a sharp drop in Xbox hardware sales, the tech giant saw its total revenue climb 17%, driven largely by a historic milestone in its cloud business. The company’s "Intelligent Cloud" division, which includes Azure, surpassed $50 billion in quarterly revenue. This 26% year-over-year surge highlights a massive shift in Microsoft’s DNA, as high-margin cloud services and AI infrastructure now dwarf the company's traditional "More Personal Computing" segment, which includes Windows and Xbox.
The gaming division is currently a tale of two worlds. While total gaming revenue dipped 9% ($623 million) this quarter, due to a tough comparison against last year’s record-breaking Call of Duty: Black Ops 6 launch. However, the physical Xbox console is becoming less central to the strategy. Xbox hardware revenue plunged 32% this quarter, marking the third consecutive year of decline, as reported by The Verge.
Gaming Strategy Shift
To counter falling console sales, CEO Satya Nadella is leaning into a "platform-agnostic" future. Microsoft is increasingly bringing its biggest hits to rival consoles; Halo: Combat Evolved, Fable, and Forza Horizon 6 are all slated for the PlayStation 5 in 2026. While Microsoft hasn't updated official Game Pass numbers recently (last reported at 34 million as of Feb 2024), the service remains a pillar of their strategy, generating nearly $5 billion annually.
It was a landmark quarter for the Windows operating system, as Windows 11 officially hit 1 billion users. This 45% year-over-year growth was accelerated by the looming end of support for Windows 10, which has pushed both businesses and consumers to upgrade their hardware.
Windows OEM revenue rose 5%, though this was tempered by a decline in Surface device revenue, as no new hardware was released during the quarter. Meanwhile, Microsoft’s massive bet on Artificial Intelligence continues to scale. The company reported a staggering $37.5 billion in capital expenditure this quarter, the majority of which went toward buying the CPUs and GPUs needed to power AI data centers. Commercial bookings also skyrocketed by 230% thanks to major cloud commitments from OpenAI and Anthropic.
To keep pace with rising costs and competition, Microsoft unveiled its new Maia 200 chip this week. Designed to host the latest AI models like GPT-5.2, the in-house silicon is intended to reduce reliance on third-party manufacturers and compete directly with AI chips from Amazon and Google.
Looking toward the remainder of 2026, CFO Amy Hood remains optimistic. While the "More Personal Computing" segment was the only division to see a revenue decline (down 3%), strong growth in LinkedIn (11%) and Microsoft 365 consumer cloud (29%) indicates a healthy ecosystem. Microsoft is betting that content and cloud will more than make up for the declining era of the "physical box."
