MSFT 2026 Q3

Microsoft delivered a record third quarter with Microsoft Cloud revenue of $54 billion, up 29% year over year, and results exceeded expectations across revenue, operating income, and EPS.

“It was a record third quarter powered by the continued strength of Microsoft Cloud, which delivered $54 billion in revenue, up 29% year over year.”— Satya Nadella, Chairman & Chief Executive Officer

Azure revenue growth of 40% this quarter came in ahead of expectations because capacity was delivered earlier than planned, enabling increased AI and non-AI consumption.

“Results were ahead of expectations as we delivered capacity earlier in the quarter, enabling increased consumption across both AI and non-AI services.”— Amy Hood, Chief Financial Officer

Management now expects Azure growth to show modest acceleration in the second half of calendar 2026 versus the first half, after being supply constrained.

“we expect Azure growth to show modest acceleration in the second half of the calendar year, compared with the first half”— Amy Hood, Chief Financial Officer

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Q4 guidance calls for Windows OEM revenue to decline in the mid-to-high teens, reversing the current quarter's above-expectations OEM result, due to inventory drawdown and memory-price-driven PC market weakness.

“Windows OEM and devices revenue should decline in the mid- to high teens.”— Amy Hood, Chief Financial Officer

Total company Q4 revenue growth is guided to 13-15%, with accelerating commercial growth partially offset by a weaker consumer business, a shift from this quarter's blended trajectory.

“revenue should be between $86.7 and $87.8 billion or growth of 13% to 15%, with accelerating commercial growth partially offset by our consumer business”— Amy Hood, Chief Financial Officer

Business applications are shifting from a traditional per-seat pricing model to a seats-plus-consumption model, with nearly 60% of service customers now purchasing usage-based credits, changing how value is monetized going forward.

Per Satya Nadella, Chairman & Chief Executive Officer

GitHub Copilot is moving to a usage-based pricing model effective June 1, a shift away from its prior seat-based pricing to align with actual usage and cost.

“we announced our move to a usage-based pricing model for GitHub Copilot as we align pricing to actual usage and cost”— Satya Nadella, Chairman & Chief Executive Officer

Xbox Game Pass pricing was changed to refocus on delivering value to gamers, which is expected to drive a low-teens revenue decline in Xbox content and services next quarter.

Per Amy Hood, Chief Financial Officer

Microsoft 365 Consumer cloud revenue growth is guided to decelerate to the low 20% range next quarter as the company begins lapping last year's price increase.

Per Amy Hood, Chief Financial Officer

Commercial bookings decreased 4% (6% in constant currency) including OpenAI Azure commitments, versus 7% growth excluding OpenAI, a reversal driven by lapping large prior commitments.

Per Amy Hood, Chief Financial Officer

Commercial RPO rose to $627 billion, up 99% year over year, a dramatic acceleration in backlog driven by OpenAI-related commitments and broader annuity sales.

Per Amy Hood, Chief Financial Officer

Despite record CapEx, management now expects Azure to remain capacity constrained at least through 2026, with demand continuing to exceed available supply.

“we expect to remain constrained at least through 2026”— Amy Hood, Chief Financial Officer

Microsoft 365 Copilot seat adds increased 250% year over year, the fastest growth since launch, with quarter-over-quarter acceleration continuing and seats surpassing 20 million.

Per Satya Nadella, Chairman & Chief Executive Officer

Copilot usage intensity hit a new high, with first-party agent monthly usage up sixfold year to date and weekly engagement now matching Outlook's level.

Per Satya Nadella, Chairman & Chief Executive Officer

Token processing on Foundry is accelerating 30% quarter over quarter, with over 300 customers on track to process over 1 trillion tokens this year.

Per Satya Nadella, Chairman & Chief Executive Officer

Microsoft introduced its first MAI models, Transcribe One and Image Two, now powering first-party scenarios and offered to commercial customers like Shutterstock and WPP for the first time through Foundry.

Per Satya Nadella, Chairman & Chief Executive Officer

LinkedIn Talent Solutions' new agentic hiring products surpassed a $450 million annualized revenue run rate, a new milestone for this product line.

Per Satya Nadella, Chairman & Chief Executive Officer

GitHub Copilot CLI usage is nearly doubling month over month, indicating rapid acceleration in adoption of this newer developer tool.

Per Satya Nadella, Chairman & Chief Executive Officer

Agent 365, a new governance control plane for agents, already manages tens of millions of agents across tens of thousands of companies, with management expecting this momentum to grow significantly.

“we expect this momentum to grow significantly as agents will increasingly need tools for identity, governance, security, and more”— Satya Nadella, Chairman & Chief Executive Officer

Company gross margin fell to 68%, down year over year, as continued AI infrastructure investment and growing AI product usage outpaced efficiency gains in Azure and Microsoft 365 cloud.

Per Amy Hood, Chief Financial Officer

Microsoft Cloud gross margin of 66% came in slightly better than expected this quarter despite being down year over year from AI investment.

Per Amy Hood, Chief Financial Officer

Guidance calls for Microsoft Cloud gross margin to decline further to roughly 64% next quarter, continuing the downward trend from 66% due to AI investment and rising GitHub Copilot usage.

Per Amy Hood, Chief Financial Officer

Management noted AI business margins have remained structurally better than during the comparable phase of the prior cloud transition, countering investor concerns about AI cost pressure.

Per Amy Hood, Chief Financial Officer

Operating margin increased slightly year over year to 46%, showing resilience despite heavy AI infrastructure investment.

Per Amy Hood, Chief Financial Officer

Management now expects full-year FY26 operating margin to be up about one point year over year, even after absorbing one-time voluntary retirement program costs.

Per Amy Hood, Chief Financial Officer

Total company headcount declined year over year as Microsoft shifts strategy toward leaner, higher-performing teams, with headcount expected to keep decreasing in FY27.

“we expect headcount will decrease year over year”— Amy Hood, Chief Financial Officer

Microsoft announced a new voluntary retirement program expected to add roughly $900 million in one-time costs to Q4 COGS and operating expenses.

Per Amy Hood, Chief Financial Officer

FY27 operating expense growth is guided to mid-to-high single digits, a deceleration from the approximately 9% growth seen this quarter.

“Operating expense growth will be in the mid- to high single digits”— Amy Hood, Chief Financial Officer

Microsoft's OpenAI agreement was restructured to give Microsoft royalty-free frontier model IP rights through 2032 and eliminate its revenue share obligation to OpenAI, while maintaining its own revenue share from OpenAI through 2030.

“having the revenue share exist through 2030... and, as Satya pointed out, the IP being royalty-free with the elimination of our rev share to them”— Amy Hood, Chief Financial Officer

Q4 CapEx guidance jumps to over $40 billion, up from $31.9 billion this quarter, driven by higher component pricing and finance lease timing as the company accelerates capacity buildout.

Per Amy Hood, Chief Financial Officer

Microsoft guided to approximately $190 billion in calendar year 2026 capital expenditures, including about $25 billion from higher component pricing, a new full-year spending level.

“we expect to invest roughly $190 billion in capital expenditures”— Amy Hood, Chief Financial Officer

Rising memory component prices are newly cited as pressuring the PC market and Windows OEM revenue, contributing to a guided high-teens revenue decline next quarter.

“navigating complex PC market dynamics impacted by memory prices”— Amy Hood, Chief Financial Officer

Management described IT budgets as being reshaped going forward by AI-driven business outcomes and reallocation from other operating expense lines, a shift in how spending will be justified.

“IT budgets will be reshaped by a combination of business outcomes making their way into IT budgets and reallocation from other line items”— Satya Nadella, Chairman & Chief Executive Officer