Earnings Brief
Microsoft (MSFT) FY2026 Q3 Earnings Brief
Summary
Microsoft earned $31.8B in net income this quarter, up 23% year-over-year. Revenue reached $82.9B, driven primarily by cloud computing (Azure) and AI products.
📊 Stock Price & Market Cap
Data as of: May 14, 2026
Stock Price (MSFT) $408.90 52-week range: $356.28 — $555.45
Market Cap $3.04T Shares outstanding: 7.428B
P/E Ratio 24.1x Forward P/E: 21.9x
In Plain Language
- Microsoft's current market cap is $3.04 trillion, making it one of the most valuable companies in the world
- At $408.90, the stock sits in the lower half of its 52-week range, about 26% below its 52-week high of $555.45
- A P/E of 24.1x means: if you buy Microsoft stock today, at current earnings levels, it would take roughly 24 years to "break even." The forward P/E of 21.9x signals analysts expect earnings to grow further
🏦 What Does Wall Street Think?
Data as of: May 2026 · Source: stockanalysis.com
Consensus Rating Strong Buy 37 analysts covering
12-Month Price Target $569.46 ↑ +39.2% vs. current price
In Plain Language
- Nearly every analyst is bullish on Microsoft: 35 out of 37 recommend buying, 0 recommend selling
- Analysts expect Microsoft to reach $569 over the next 12 months on average — about 39% above the current price of $409
- The most optimistic analyst believes Microsoft will reach $680 in a year; the most conservative gives $415 (near current price)
- Note: Analyst forecasts are for reference only — historically, analyst price targets are often inaccurate. Investing involves risk; make your own judgment
💰 How Much Did They Earn?
| Metric | This Quarter (Q3) | Last Quarter (Q2) | Year Ago | YoY Change |
|---|---|---|---|---|
| Total Revenue | $82.9B | $81.3B | $70.1B | ↑ +18.3% |
| Gross Profit | $56.1B | $55.3B | $48.1B | ↑ +16.6% |
| Operating Income | $38.4B | $38.3B | $32.0B | ↑ +20.0% |
| Net Income | $31.8B | $38.5B | $25.8B | ↑ +23.3% |
| Earnings Per Share | $4.27 | $5.16 | $3.46 | ↑ +23.4% |
In Plain Language
- Microsoft earns roughly $350M per day — about $4,000 every second
- For every $100 in revenue, $38 flows to the bottom line (net margin ~38%)
- Last quarter's higher net income of $38.5B included a one-time investment gain — a non-recurring event
📊 Where Did the Money Go?
| Expense Item | Amount | % of Revenue | Notes |
|---|---|---|---|
| Cost of Revenue | $26.8B | 32% | Data center operations, content costs, etc. |
| R&D | $8.9B | 11% | AI, cloud computing R&D |
| Capital Expenditures | $30.9B | 37% | Buying servers, building data centers |
In Plain Language
- Microsoft spent $30.9B on data centers and servers this quarter — nearly double year-ago levels ($16.7B)
- This reflects an AI demand explosion; Microsoft is aggressively expanding its infrastructure
- R&D spending of $8.9B also continues to grow steadily, signaling ongoing investment in innovation
🏢 Three Business Segments
Microsoft's business is divided into three segments. Here's how each performed versus the same quarter last year:
Intelligent Cloud
Azure cloud services, SQL Server, enterprise server products
Revenue $34.7B ↑ YoY +29.6%
Operating Income $13.8B ↑ YoY +24.0%
Margin 39.6% ↓ Prior year 41.5%
In Plain Language
- The biggest growth engine: Revenue up nearly 30% YoY, driven mainly by Azure cloud and AI services
- Microsoft Cloud total revenue reached $54.5B (Azure + M365 Commercial Cloud + Dynamics 365, etc.), up 28.5% YoY
- Margin declined slightly (41.5% → 39.6%) due to rising costs from data center expansion
Productivity & Business Processes
Office 365, LinkedIn, Dynamics 365
Revenue $35.0B ↑ YoY +16.9%
Operating Income $21.0B ↑ YoY +20.7%
Margin 59.9% ↑ Prior year 58.0%
In Plain Language
- Highest-margin business: $60 stays for every $100 earned — a true "money printing machine"
- M365 Commercial revenue of $25.6B, up +17% YoY — enterprise Office, Teams, Copilot
- LinkedIn revenue of $4.8B, up +12% YoY — steady growth continues
More Personal Computing
Windows, Gaming (Xbox), Search Advertising (Bing)
Revenue $13.2B ↓ YoY -1.3%
Operating Income $3.7B ↑ YoY +4.1%
Margin 27.8% ↑ Prior year 26.4%
In Plain Language
- The only segment with declining revenue: mainly because Gaming (Xbox) revenue fell 6.6% YoY, from $5.7B to $5.3B
- Search advertising (Bing + AI Search) revenue of $3.8B, up +8.7% YoY, benefiting from Copilot/AI search
- Windows and Devices revenue of $4.0B, roughly flat
- Despite slightly lower revenue, margin actually improved — better cost control
Revenue Breakdown by Product Line
| Product / Service | This Quarter | Year Ago | YoY Change |
|---|---|---|---|
| Server & Cloud Services (incl. Azure) | $32.6B | $24.8B | +31.6% |
| M365 Commercial (Enterprise Office) | $25.6B | $21.9B | +16.9% |
| Gaming (Xbox + Content) | $5.3B | $5.7B | -6.6% |
| $4.8B | $4.3B | +12.1% | |
| Windows & Devices | $4.0B | $4.1B | -2.5% |
| Search Advertising (Bing) | $3.8B | $3.5B | +8.7% |
| M365 Consumer (Personal Office) | $2.3B | $1.8B | +26.1% |
| Dynamics 365 | $2.3B | $1.9B | +18.8% |
| Enterprise Services | $2.1B | $1.9B | +7.2% |
In Plain Language
- Azure is the crown jewel: Server & Cloud accounts for 39% of total revenue and is the fastest-growing (+31.6%), with AI as the core driver
- Office is the backbone: M365 Commercial is the second-largest revenue stream, growing steadily — enterprises can't function without Office
- Gaming is cooling off: The high base from the Activision Blizzard acquisition has faded, and revenue is declining year-over-year
- Consumer Office is a bright spot: +26.1%, likely driven by Copilot AI assistant boosting subscriptions
🏦 How Strong is the Balance Sheet?
| Metric | End of This Quarter | End of Last Quarter | Notes |
|---|---|---|---|
| Total Assets | $694.2B | $665.3B | All assets on the books (cash + equipment + investments, etc.) |
| Cash & Equivalents | $32.1B | $24.3B | Money in the bank |
| Long-term Debt | $40.3B | $40.3B | Long-term loans owed |
| Total Liabilities | $279.9B | $274.4B | Everything owed |
| Shareholders' Equity | $414.3B | $390.9B | Assets minus liabilities |
In Plain Language
- Note: Book value of $694.2B ≠ Microsoft's market value. Microsoft's market cap (stock price × shares) is approximately $3 trillion — over 4x book value. The gap comes from brand, technology, talent and other "invisible assets" that don't appear on the balance sheet
- Microsoft holds $32.1B in cash against $40.3B in long-term debt — for a company with Microsoft's earnings power, this is utterly manageable
- Shareholders' equity grew by $23.4B vs. last quarter — the company "fattened up" by about 6% in a single quarter
- Total asset growth is mainly driven by massive AI infrastructure investment
📈 What Changed vs. Last Quarter?
Improvements
- Revenue keeps growing: $81.3B → $82.9B, solid and steady
- Cash increased: $24.3B → $32.1B, up $7.8B
- Strong operating cash flow: $46.7B in operating cash flow this quarter
Things to Watch
- Net income declined: $38.5B → $31.8B, but last quarter included a one-time gain
- CapEx surging: $30.9B — AI infrastructure investment keeps climbing
- Free cash flow pressure: $46.7B - $30.9B = $15.8B, CapEx eating more of cash flow
📅 What Changed vs. One Year Ago?
| Metric | FY2025 Q3 | FY2026 Q3 | Change |
|---|---|---|---|
| Revenue | $70.1B | $82.9B | +18.3% |
| Net Income | $25.8B | $31.8B | +23.3% |
| EPS | $3.46 | $4.27 | +23.4% |
| CapEx | $16.7B | $30.9B | +85.0% |
| R&D | $8.2B | $8.9B | +8.5% |
In Plain Language
- In one year, revenue grew 18% while net income grew 23% — profits growing faster than revenue signals improving efficiency
- The standout: CapEx soared 85%, nearly doubling — all of it AI investment
- Microsoft is betting big on AI being the future — this is the heavy-investment phase
🎯 Key Points for Investors
1
Microsoft remains a cash machine
Annualized revenue exceeds $330B with net margins holding above 38%
2
AI investment is the headline story
CapEx nearly doubled — Microsoft is going all-in on AI infrastructure
3
Short-term profit vs. long-term investment
Massive CapEx compresses near-term free cash flow, but a successful AI bet could yield extraordinary returns
4
Cash flow remains healthy
Even with heavy investment, the company still generates $15.8B in free cash flow per quarter