Microsoft’s AI-fueled cloud strategy powers double-digit revenue surge

Riding a wave of demand for artificial intelligence and cloud services, Microsoft closed the quarter ended 31 December with strong financial and strategic momentum.

Microsoft reported quarterly revenue of 81.3 billion dollars, a 17% year-on-year increase, driven primarily by the rapid adoption of its cloud and AI offerings across enterprise and consumer markets. Operating income rose 21% to 38.3 billion dollars, while net income under GAAP jumped 60% to 38.5 billion dollars; on a non-GAAP basis, net income grew 23% to 30.9 billion dollars.

Diluted earnings per share reached 5.16 dollars under GAAP, up 60%, and 4.14 dollars on a non-GAAP basis, an increase of 24%, with the adjusted figures excluding the impact of Microsoft’s investments in OpenAI. Over recent years, the company has committed multibillion-dollar funding to the creator of ChatGPT, embedding its models across Azure, Microsoft 365 and Copilot to deepen AI capabilities in productivity and cloud platforms.

“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,” said Satya Nadella, Microsoft’s chairman and chief executive officer, noting that the company is advancing innovation “across our entire AI stack” to create new value for customers and partners.

Cloud services remained the core growth engine, with Microsoft Cloud revenue surpassing the 50-billion-dollar mark in the quarter. The company reported 51.5 billion dollars in cloud revenue, up 26%, while its commercial remaining performance obligation increased 110% to 625 billion dollars, highlighting strong long-term demand.

“Our cloud portfolio continues to see strong momentum, and this quarter Microsoft Cloud revenue crossed 50 billion dollars,” said Amy Hood, executive vice-president and chief financial officer, adding that the company exceeded expectations on revenue, operating income and earnings per share.

Across business lines, productivity and business processes revenue rose 16% to 34.1 billion dollars, supported by gains in Microsoft 365, LinkedIn and Dynamics 365. Intelligent Cloud revenue climbed 29% to 32.9 billion dollars, with Azure and other cloud services growing 39%, reflecting heightened demand for AI-infused infrastructure and platform services.

By contrast, the “more personal computing” segment recorded a 3% decline in revenue to 14.3 billion dollars, weighed down by softer performance in Xbox content and services, even as search and news advertising revenue increased 10%.

Microsoft also continued to return capital to shareholders, distributing 12.7 billion dollars in the second quarter of fiscal 2026 through dividends and share repurchases, up 32% from the same period a year earlier, underscoring management’s confidence in the company’s cash generation and long-term growth prospects.