Microsoft reported its second quarter fiscal year 2026 financial results on January 28, 2026, delivering strong overall growth driven by cloud and artificial intelligence, while its gaming business recorded a year-over-year decline.
For the quarter ended December 31, 2025, Microsoft generated revenue of $81.3 billion, up 17 percent year over year, with operating income rising 21 percent to $38.3 billion. On a GAAP basis, net income reached $38.5 billion, up 60 percent, while non-GAAP net income totaled $30.9 billion, representing a 23 percent increase. Diluted earnings per share came in at $5.16 GAAP and $4.14 non-GAAP.
Microsoft Cloud surpassed $50 billion in quarterly revenue for the first time, reaching $51.5 billion, an increase of 26 percent year over year. The company also reported commercial remaining performance obligation of $625 billion, up 110 percent, reflecting contracted future revenue.
Satya Nadella stated, “We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises. We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.” CFO Amy Hood added, “Microsoft Cloud revenue crossed $50 billion this quarter, reflecting the strong demand for our portfolio of services. We exceeded expectations across revenue, operating income, and earnings per share.”
Segment performance highlighted the company’s transformation toward cloud-centric operations. Productivity and Business Processes revenue reached $34.1 billion, up 16 percent, with Microsoft 365 Commercial cloud revenue up 17 percent and Dynamics 365 up 19 percent. Intelligent Cloud revenue rose 29 percent to $32.9 billion, driven by Azure and other cloud services growth of 39 percent.
More Personal Computing revenue declined 3 percent to $14.3 billion. Within this segment, Xbox content and services revenue fell 5 percent, making gaming the only major Microsoft business line to contract during the quarter. Windows OEM and Devices revenue increased 1 percent, while search and news advertising revenue excluding traffic acquisition costs grew 10 percent.
The gaming decline comes more than two years after Microsoft completed its $69 billion acquisition of Activision Blizzard, following its earlier $7.5 billion purchase of ZeniMax Media. Despite these investments, the current quarter reflects softer performance for Xbox-related content and services.
Microsoft returned $12.7 billion to shareholders through dividends and share repurchases during the quarter, up 32 percent year over year.
Overall, the results underline Microsoft’s accelerating momentum in cloud and AI while highlighting ongoing challenges in its gaming division, which continues to lag behind the company’s broader growth trajectory.
