Microsoft studies sturdy cloud earnings in Q2 as gaming declines

Microsoft just posted the second quarter of its 2026 fiscal monetary outcomes. The software program maker made $81.3 billion in income and a internet revenue of $30.9 billion throughout Q3. Revenue is up 17 %, and internet revenue has elevated by 23 %.

The vacation quarter noticed PC shipments develop unexpectedly amid an ongoing RAM scarcity. Microsoft’s finish of Windows 10 assist helped push PC shipments up, however IDC revealed earlier this month that PC makers have additionally been aggressively pulling ahead stock to fight potential tariffs and ongoing international reminiscence scarcity.

Microsoft’s Windows OEM and gadgets income over this vacation interval was up simply 1 % year-over-year. Businesses and shoppers have clearly been upgrading PCs and laptops through the Windows 10 finish of life interval, as a result of Windows OEM income by itself was up 5 %. But this income was offset by a decline in gadgets income as Microsoft combines Surface income and Windows OEM income collectively now.

Microsoft didn’t announce any new Surface gadgets through the current quarter, after launching each the 12-inch Surface Pro and 13-inch Surface Laptop in May final yr. I might anticipate to listen to extra about new Surface gadgets within the spring.

Microsoft’s Xbox {hardware} income has declined for 3 monetary years in a row, and it appears like these declining revenues are going to proceed all through fiscal 2026. Xbox {hardware} income was down 32 % year-over-year through the current vacation quarter. Overall gaming income was additionally down 9 %.

Xbox content material and companies, which incorporates Game Pass, is down 5 %, too. This decline is essentially being attributed to stronger first-party content material efficiency within the earlier yr, and never the Game Pass Ultimate value hike through the quarter. That factors in direction of softer gross sales numbers for Call of Duty: Black Ops 7, which not solely needed to go up towards Battlefield 6, but additionally the success of Black Ops 6 in 2024.

Unsurprisingly, Microsoft isn’t giving us an replace on Xbox Game Pass subscriber numbers. The firm final reported it had 34 million subscribers practically two years in the past, which included Xbox Game Pass Essential (beforehand Xbox Live Gold / Game Pass Core) members.

Microsoft has continued to publish extra video games on PS5, as a part of its technique to make beforehand Xbox-exclusive video games out there on Nintendo and Sony platforms. Microsoft revealed final yr that Halo: Campaign Evolved is coming to PS5 and Xbox in 2026, and Fable and Forza Horizon 6 are additionally coming to Sony’s console this yr.

Microsoft’s cloud income was as soon as once more sturdy this quarter, and even crossed $50 billion total — up 26 % year-over-year. Azure and different cloud companies income grew 39 %.“ Microsoft Cloud revenue crossed $50 billion this quarter, reflecting the strong demand for our portfolio of services,” says Microsoft CFO Amy Hood. “We exceeded expectations across revenue, operating income, and earnings per share.”

All eyes are nonetheless on Microsoft’s AI revenues and the related prices, and the software program maker hasn’t pulled out any particular AI product numbers this quarter. Capital expenditure in Q2 was $37.5 billion, and the vast majority of that spend was on belongings like CPU and GPUs to gas cloud and AI information facilities. Commercial bookings have additionally elevated 230 % year-over-year, due to Azure commitments from OpenAI and Anthropic.

Microsoft introduced its newest in-house AI chip this week, which is able to assist host GPT-5.2 and different fashions for Microsoft Foundry and Microsoft 365 Copilot. The Maia 200 chip is designed for large-scale AI workloads and can go head-to-head with related AI inference chips from Amazon and Google.

Microsoft additionally noticed Microsoft 365 client cloud income development of 29 % year-over-year, alongside Microsoft 365 industrial cloud income development of 17 %. LinkedIn income additionally grew by 11 % year-over-year.

The energy of Microsoft’s Intelligent Cloud enterprise, which incorporates Azure and server merchandise, actually shines a brilliant gentle on the decline of the More Personal Computing enterprise of Windows, Xbox, and Surface. Intelligent Cloud contributed $32.9 billion in income this quarter, greater than double the $14.3 billion from More Personal Computing. In reality, the More Personal Computing division declined by 3 % in income year-over-year, the one enterprise unit to take action this quarter.

Microsoft blames that More Personal Computing decline on gaming, and it was offset by search and information promoting revenues rising by 10 % and Windows OEM development.

Microsoft will now maintain an earnings name at 5:30PM ET, and we’ll replace this text with any related feedback from Microsoft CEO Satya Nadella and Microsoft CFO Amy Hood.