Microsoft has disclosed its financial performance for the second quarter of the 2026 fiscal year, revealing a robust revenue of $81.3 billion and a net income of $30.9 billion. This marks a significant increase of 17 percent in revenue and a 23 percent rise in net income compared to the previous year.
A notable factor contributing to this growth was the suddenly increased PC shipments during the holiday season, driven partly by the end of Windows 10 support. IDC data suggests that PC manufacturers have been strategically pulling forward inventory in light of anticipated tariffs and a global RAM shortage, further stimulating sales.
In the specific segment of Windows OEM and devices revenue, there was a modest 1 percent increase year-over-year for the holiday quarter. Businesses and consumers have evidently been motivated to upgrade their PCs and laptops as they transition away from Windows 10, leading to a reported 5 percent rise in Windows OEM revenue. However, this growth was somewhat counterbalanced by a decline in devices revenue, as Microsoft has now combined Surface revenue with Windows OEM revenue for reporting purposes.
On another front, Windows 11 has hit a significant milestone, reaching 1 billion users—a 45 percent increase year-over-year. Microsoft’s CEO, Satya Nadella, attributed this surge in users to the expiration of Windows 10 support, which helped Windows 11 achieve this figure more quickly than its predecessor.
While Microsoft did not announce any new Surface devices this quarter, having launched the 12-inch Surface Pro and 13-inch Surface Laptop the previous May, speculation suggests announcements may come in the spring.
In contrast, Microsoft’s Xbox hardware revenue has faced a continual decline, falling 32 percent year-over-year for the third consecutive financial year. This downturn extends to overall gaming revenue, which decreased by 9 percent. Furthermore, Xbox content and services revenue, including Game Pass, has decreased by 5 percent, primarily due to last year’s strong performance of first-party content rather than the recent price increase for Game Pass Ultimate. Underperforming sales figures for the latest Call of Duty installment have also contributed to these declines, which are exacerbated by competition from other game titles.
Microsoft has yet to provide updated figures on Xbox Game Pass subscriber counts, which stood at 34 million nearly two years ago. In a strategic pivot, Microsoft has increased its output of previously Xbox-exclusive games to PS5 and other platforms, with upcoming titles like Halo: Campaign Evolved, Fable, and Forza Horizon 6 slated for release on Sony’s console this year.
In the cloud arena, Microsoft continues to demonstrate strong performance, with total cloud revenue surpassing $50 billion—an increase of 26 percent compared to the previous year. Azure and related cloud services revenue grew 39 percent, with CFO Amy Hood highlighting robust demand for Microsoft’s service portfolio.
Attention remains focused on the company’s expanding AI revenues, although no specific figures for AI product sales were released during this quarter. Capital expenditure reached $37.5 billion, predominantly allocated towards assets like CPU and GPU purchases for cloud and AI data centers. Notably, commercial bookings have surged 230 percent year-over-year, largely thanks to Azure agreements with partners like OpenAI and Anthropic.
This quarter also saw the introduction of Microsoft’s latest AI chip, the Maia 200, designed to support large-scale AI workloads and compete directly with chips from Amazon and Google.
Moreover, consumer cloud revenue from Microsoft 365 grew by 29 percent year-over-year, while commercial cloud revenue rose by 17 percent. LinkedIn also reported an 11 percent increase in revenue in the same period.
The stark contrast between Microsoft’s Intelligent Cloud business—contributing $32.9 billion to revenue—and the More Personal Computing division, which experienced a revenue decline of 3 percent, underscores the shifting dynamics within the company. While the decline in gaming revenue was a notable factor in this downturn, the growth in search and news advertising revenues by 10 percent, alongside Windows OEM growth, helped to mitigate some losses in the More Personal Computing segment.
