Microsoft Q2 2026 earnings showed continued strength in cloud and AI, with Microsoft reporting revenue of $81.3 billion for the quarter ended December 31, 2025. Microsoft said Microsoft Cloud revenue crossed $50 billion in the quarter, while the company also highlighted strong demand for its services and a sharp jump in commercial remaining performance obligation.
The results arrived alongside heightened investor focus on spending tied to AI infrastructure, as Microsoft reported a significant increase in capital expenditures during the period. In its earnings release, Microsoft said it exceeded expectations across revenue, operating income, and earnings per share.
Cloud growth leads the quarter
Microsoft said revenue rose 17% to $81.3 billion, while operating income increased 21% to $38.3 billion. The company reported diluted earnings per share of $5.16 on a GAAP basis and $4.14 on a non-GAAP basis, with the non-GAAP results excluding the impact from investments in OpenAI.
Microsoft said Microsoft Cloud revenue was $51.5 billion, up 26%, and commercial remaining performance obligation increased 110% to $625 billion. In the same earnings materials, Microsoft highlighted that Azure and other cloud services revenue increased 39% (38% in constant currency).
Microsoft CEO Satya Nadella said in the earnings release that Microsoft is “only at the beginning phases of AI diffusion” and that the company has “built an AI business that is larger than some of our biggest franchises.” CFO Amy Hood said Microsoft Cloud revenue crossed $50 billion in the quarter and added that the company exceeded expectations across revenue, operating income, and earnings per share.
AI investment and rising capex
Microsoft’s results also reflected heavier investment in infrastructure supporting AI and cloud services. Investing.com reported Microsoft’s capital expenditures increased to $37.5 billion, up 66% year-over-year, with about two-thirds allocated to short-lived assets such as GPUs and CPUs.
Investing.com also reported that Microsoft Cloud gross margin was 67% in Q2 FY26 compared with 70% in the same quarter a year earlier. The same report said Microsoft expects Microsoft Cloud gross margin to be around 65% and projected Azure revenue growth of 37% to 38% in constant currency.
In a separate Investing.com analysis, the outlet said investors were watching Azure performance and capital spending closely, and it described expectations that spending could move close to the $100 billion level. That analysis also stated Microsoft spent nearly $35 billion in the first fiscal quarter, and it cited total spending of $88.2 billion in the previous year.
Segment results: Office, cloud, and gaming
Microsoft reported revenue of $34.1 billion in its Productivity and Business Processes segment, up 16%. Microsoft said Microsoft 365 Commercial cloud revenue increased 17%, Microsoft 365 Consumer cloud revenue rose 29%, LinkedIn revenue increased 11%, and Dynamics 365 revenue grew 19%.
In Intelligent Cloud, Microsoft reported revenue of $32.9 billion, up 29%. The company said Azure and other cloud services revenue increased 39% in the quarter.
More Personal Computing revenue was $14.3 billion, down 3%, according to Microsoft. Microsoft said Windows OEM and Devices revenue increased 1%, Xbox content and services revenue decreased 5%, and search and news advertising revenue excluding traffic acquisition costs increased 10%.
Investing.com also reported that Xbox hardware revenue fell 32% and that the segment decline was driven by weakness in gaming. The same report described search and news advertising revenue as a brighter spot and used the same measure of growth excluding traffic acquisition costs.
OpenAI investment impact and outlook
Microsoft said its GAAP and non-GAAP reporting differences in the quarter were influenced by investments in OpenAI. In its non-GAAP definition section, Microsoft said net gains from investments in OpenAI increased net income by $7.6 billion and diluted earnings per share by $1.02 in the second quarter of fiscal year 2026.
Microsoft also said that in the second quarter of fiscal year 2025, net losses from investments in OpenAI decreased net income by $939 million and diluted earnings per share by $0.12. The company said it returned $12.7 billion to shareholders through dividends and share repurchases in the quarter, up 32% from the second quarter of fiscal year 2025.
Investing.com reported that Microsoft expected third-quarter revenue to be between $80.65 billion and $81.75 billion. Investing.com also reported Microsoft shares rose 0.63% in after-hours trading to $483.61 following the earnings announcement.
