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Get filing alertsMicrosoft Q3 revenue +18% to $82.9B; OpenAI recapitalization drives $5.9B gain; datacenter leases double
Filed April 29, 2026 · Period ending March 31, 2026 · Compared to 10-Q Apr 30, 2025 · ~2 min read
Key Financials
SEC XBRL| Metric | PriorMar 31, 2025 | CurrentMar 31, 2026 | Δ |
|---|---|---|---|
| Revenue | $70.1B | $82.9B | ▲ +18.3% |
| Net income | $25.8B | $31.8B | ▲ +23.1% |
| Diluted EPS | $3.46 | $4.27 | ▲ +23.4% |
| Operating income | $32.0B | $38.4B | ▲ +20.0% |
| Cash & equivalents | $28.8B | $32.1B | ▲ +11.4% |
| Long-term debt (noncurrent) | $39.9B | $31.4B | ▼ -21.2% |
| Total assets | $562.6B | $694.2B | ▲ +23.4% |
As reported in XBRL by the filer · 10-Q vs 10-Q. Income figures cover the fiscal quarter (not year-to-date); cash & assets are period-end balances. n/m = not meaningful (sign change; a % would mislead). about this table · verify on EDGAR →
Key Number Changes
Prior filing · verify on EDGAR →
As of March 31, 2025, we accrued aggregate legal liabilities of $530 million.
Current filing · verify on EDGAR →
As of March 31, 2026, we accrued aggregate legal liabilities of $647 million.
Prior filing · verify on EDGAR →
While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $800 million in aggregate beyond recorded amounts are reasonably possible.
Current filing · verify on EDGAR →
While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $400 million in aggregate beyond recorded amounts are reasonably possible.
Prior filing · verify on EDGAR →
Microsoft Cloud revenue increased 20% to $42.4 billion.
Current filing · verify on EDGAR →
Microsoft Cloud revenue increased 29% to $54.5 billion.
Prior filing · verify on EDGAR →
Microsoft Cloud gross margin percentage decreased to 69% driven by the impact of scaling our AI infrastructure.
Current filing · verify on EDGAR →
Microsoft Cloud gross margin percentage decreased to 66% driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.
Prior filing · verify on EDGAR →
Revenue increased $8.2 billion or 13% with growth across each of our segments.
Current filing · verify on EDGAR →
Revenue increased $12.8 billion or 18% driven by growth in Microsoft Cloud.
Prior filing · verify on EDGAR →
Operating income increased $4.4 billion or 16% with growth across each of our segments.
Current filing · verify on EDGAR →
Operating income increased $6.4 billion or 20% driven by growth in Productivity and Business Processes and Intelligent Cloud.
Prior filing · verify on EDGAR →
For the nine months ended March 31, 2025 and 2024, we repurchased 23 million shares and 25 million shares of our common stock for $9.8 billion and $9.2 billion, respectively, through our share repurchase program.
Current filing · verify on EDGAR →
For the nine months ended March 31, 2026 and 2025, we repurchased 27 million shares and 23 million shares of our common stock for $13.3 billion and $9.8 billion, respectively, through our share repurchase program.
Prior filing · verify on EDGAR →
As of March 31, 2025, $549 million remained of our $60 billion share repurchase program.
Current filing · verify on EDGAR →
As of March 31, 2026, $44.0 billion remained of our $60 billion share repurchase program.
Prior filing · verify on EDGAR →
For the nine months ended March 31, 2025 and 2024, our Board of Directors declared dividends totaling $18.5 billion and $16.7 billion, respectively.
Current filing · verify on EDGAR →
For the nine months ended March 31, 2026 and 2025, our Board of Directors declared dividends totaling $20.3 billion and $18.5 billion, respectively.
Prior filing · verify on EDGAR →
Cash, cash equivalents, and short-term investments totaled $79.6 billion and $75.5 billion as of March 31, 2025 and June 30, 2024, respectively.
Current filing · verify on EDGAR →
Cash, cash equivalents, and short-term investments totaled $78.3 billion and $94.6 billion as of March 31, 2026 and June 30, 2025, respectively.
Prior filing · verify on EDGAR →
Equity and other investments were $16.0 billion and $14.6 billion as of March 31, 2025 and June 30, 2024, respectively.
Current filing · verify on EDGAR →
Equity and other investments were $33.7 billion and $15.4 billion as of March 31, 2026 and June 30, 2025, respectively.
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Our effective tax rate was 18% for both the three months ended March 31, 2025 and 2024, and 18% for both the nine months ended March 31, 2025 and 2024.
Current filing · verify on EDGAR →
Our effective tax rate was 19% and 18% for the three months ended March 31, 2026 and 2025, respectively, and 20% and 18% for the nine months ended March 31, 2026 and 2025, respectively.
Prior filing · verify on EDGAR →
As of March 31, 2025 and June 30, 2024, other receivables related to activities to facilitate the purchase of server components were $10.8 billion and $10.5 billion, respectively, and are included in other current assets in our consolidated balance sheets.
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As of March 31, 2026 and June 30, 2025, other receivables related to activities to facilitate the purchase of server components were $17.8 billion and $8.2 billion, respectively, and are included in other current assets in our consolidated balance sheets.
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As of March 31, 2025, we had additional operating and finance leases, primarily for datacenters, that had not yet commenced of $4.4 billion and $94.8 billion, respectively. These operating and finance leases will commence between fiscal year 2025 and fiscal year 2030 with lease terms of 1 year to 20 years.
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As of March 31, 2026, we had additional leases, primarily for datacenters, that had not yet commenced of $196.6 billion. These leases will commence between fiscal year 2026 and fiscal year 2031 with lease terms of 1 year to 21 years.
Prior filing · verify on EDGAR →
Total finance lease liabilities | $ 39,214
Current filing · verify on EDGAR →
Total finance lease liabilities | $ 62,932
Prior filing · verify on EDGAR →
As of March 31, 2025 and June 30, 2024, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $2.9 billion and $3.9 billion, respectively, and equity investments measured using the equity method were $6.8 billion and $6.0 billion, respectively.
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As of March 31, 2026 and June 30, 2025, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $9.3 billion and $2.9 billion, respectively, and equity investments measured using the equity method were $11.1 billion and $6.0 billion, respectively.
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As of March 31, 2025, we accrued aggregate legal liabilities of $530 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $800 million in aggregate beyond recorded amounts are reasonably possible.
Current filing · verify on EDGAR →
As of March 31, 2026, we accrued aggregate legal liabilities of $647 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $400 million in aggregate beyond recorded amounts are reasonably possible.
Key Changes
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high
OpenAI recapitalization in October 2025 triggered a $5.9B dilution gain (non-operating), boosting net income while operating income grew 20%. Microsoft's ownership fell to ~27% on an as-converted basis as OpenAI became a public benefit corporation.
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high
Uncommenced datacenter leases nearly doubled from $99.2B to $196.6B, extending through fiscal 2031. Finance lease liabilities rose 60% to $62.9B. Microsoft also disclosed $11.5B in restricted investments tied to a supplier agreement.
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high
Microsoft Cloud revenue grew 29% to $54.5B, but gross margin compressed 300bp to 66% due to AI infrastructure investments and growing AI product usage, partially offset by efficiency gains.
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high
Commercial remaining performance obligation surged 99% to $627B, reflecting strong multi-year contract signings and deferred cloud revenue. Operating income grew 20% to $38.4B.
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high
Trade policy volatility and AI export controls added as material risks: U.S. tariff uncertainty, shifting AI export rules (including the rescinded AI Diffusion Rule), and geopolitical tensions (particularly U.S.-Europe) could increase costs and accelerate customer sovereignty initiatives.
Summary
Microsoft delivered strong Q3 FY26 results with total revenue up 18.3% to $82.9 billion and operating income up 20% to $38.4 billion, driven by accelerating Microsoft Cloud growth (29% to $54.5B).
However, the headline earnings story diverges sharply from operations: a $5.9 billion non-operating dilution gain from the October 2025 OpenAI recapitalization — which converted OpenAI into a public benefit corporation and reduced Microsoft's ownership to approximately 27% — significantly boosted net income while operating income grew at a more modest 20%.
This is a one-time accounting gain, not a cash event or operational improvement. Microsoft Cloud gross margin compressed 300 basis points to 66% as AI infrastructure investments and growing AI product usage outpaced efficiency gains, a trend investors should monitor closely. The balance sheet reveals the scale of Microsoft's AI infrastructure buildout: uncommenced datacenter leases nearly doubled from $99.2 billion to $196.6 billion, with obligations now extending through fiscal 2031. Finance lease liabilities rose 60% to $62.9 billion, and the company disclosed $11.5 billion in restricted investments tied to a supplier agreement — likely collateral for datacenter components. Other receivables related to server component purchases jumped 65% to $17.8 billion. Commercial remaining performance obligation surged 99% to $627 billion, reflecting robust multi-year contract signings. Legal exposure improved modestly: accrued liabilities rose $117 million to $647 million, but reasonably possible losses beyond accruals fell $400 million to $400 million. Risk disclosures expanded materially around trade policy volatility and AI regulation. Microsoft now flags U.S. tariff uncertainty, shifting AI export controls (including the rescinded AI Diffusion Rule), and geopolitical tensions — particularly between the U.S. and Europe — as threats to supply chain cost competitiveness and customer sovereignty. The company also disclosed that AI development and deployment increases energy use and emissions, making it harder to meet 2030 carbon-negative, water-positive, and zero-waste goals. Watch next quarter for: (1) whether Microsoft Cloud margin stabilizes or compresses further as AI usage scales, (2) how much of the $196.6B uncommenced datacenter lease pipeline converts to on-balance-sheet liabilities, and (3) any concrete impact from trade policy or export control changes on Azure infrastructure costs or customer demand.
Section-by-Section Diff
Legal Proceedings
Cell phone litigation removed after summary judgment; IDPC matter updated; accrued liabilities rose $117M while possible losses fell $400M.
Previous filing · verify on EDGAR →
As of March 31, 2025, we accrued aggregate legal liabilities of $530 million.
Current filing · verify on EDGAR →
As of March 31, 2026, we accrued aggregate legal liabilities of $647 million.
Accrued legal liabilities increased from $530 million to $647 million year-over-year, a rise of $117 million or 22%. This reflects management's updated estimate of probable losses from ongoing legal matters.
Previous filing · verify on EDGAR →
While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $800 million in aggregate beyond recorded amounts are reasonably possible.
Current filing · verify on EDGAR →
While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $400 million in aggregate beyond recorded amounts are reasonably possible.
The estimate of reasonably possible adverse outcomes beyond accrued amounts decreased from $800 million to $400 million, a reduction of $400 million or 50%. This suggests either favorable developments in pending matters or resolution of certain exposures, partially offsetting the increase in accrued liabilities.
Show 2 minor / wording changes
Removed from previous filing · verify on EDGAR →
Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have been substituted for the Nokia defendants. Twelve of these cases were consolidated for certain pre-trial proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre-empted by federal law. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines. In 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ motion to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal to the District of Columbia Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which were stricken by the court. A hearing on general causation took place in September of 2022. In April of 2023, the court granted defendants’ motion to strike the testimony of plaintiffs’ experts that cell phones cause brain cancer and entered an order excluding all of plaintiffs’ experts from testifying. The parties agreed to a stipulated dismissal of the consolidated cases to allow plaintiffs to appeal the expert testimony order. Plaintiffs appealed the court’s order in August of 2023, and the appeal was argued in January of 2025. A hearing on the status of the stayed cases occurred in December of 2023. In July 2024, the court entered summary judgment in nine of the stayed cases on the grounds that plaintiffs had agreed to be bound by the general causation outcome in the consolidated cases.
The entire U.S. Cell Phone Litigation disclosure has been removed from the current filing. The baseline described 45 lawsuits alleging brain tumors from cellular handset emissions, with consolidated cases dismissed after expert testimony was excluded and nine stayed cases receiving summary judgment in July 2024. The current filing contains no reference to this litigation, suggesting the matter has concluded or no longer requires disclosure.
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In November 2024, LinkedIn appealed the final decision to the Irish courts, and the next hearing is scheduled for May 2025.
Current filing · verify on EDGAR →
In November 2024, LinkedIn appealed the final decision to the Irish courts. A preliminary hearing was held in December 2025.
The IDPC matter disclosure has been updated to reflect procedural progress. The baseline indicated a hearing scheduled for May 2025, while the current filing reports that a preliminary hearing was actually held in December 2025. This reflects the matter advancing through the Irish court system as expected.
MD&A
Q3 FY26 revenue +18% to $82.9B; Microsoft Cloud +29% to $54.5B; operating income +20%; OpenAI partnership extended; commercial RPO +99% to $627B.
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We have a long-term strategic partnership with OpenAI which was originally established in 2019. In October 2025 and April 2026, we extended this partnership and continue to build on our shared vision to advance artificial intelligence responsibly and make its benefits broadly accessible. Microsoft is a major investor in OpenAI and will continue to receive revenue-sharing payments. We hold rights to OpenAI’s intellectual property, including models and infrastructure, for integration into our products.
Microsoft disclosed two extensions to its OpenAI partnership during fiscal 2026 (October 2025 and April 2026), adding detail about revenue-sharing payments and IP rights. The baseline mentioned the partnership's 2019 origin but did not disclose these extensions or the revenue-sharing arrangement.
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Fluctuations in the U.S. dollar relative to certain foreign currencies decreased reported revenue and expenses from our international operations for the three months ended March 31, 2025, and did not have a material impact on reported revenue and expenses from our international operations for the nine months ended March 31, 2025.
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Fluctuations in the U.S. dollar relative to certain foreign currencies increased reported revenue and expenses from our international operations for the three and nine months ended March 31, 2026.
FX impact reversed from a headwind (decreased revenue/expenses in Q3 FY25) to a tailwind (increased revenue/expenses in Q3 FY26). The dollar weakened relative to foreign currencies year-over-year, boosting reported international results.
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Microsoft 365 Consumer subscribers The number of Microsoft 365 Consumer subscribers at end of period
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In the first quarter of fiscal year 2026, we made updates to our metrics to align with how we manage and monitor certain businesses. As part of these updates, Microsoft 365 Consumer subscribers was removed as a metric.
Microsoft discontinued reporting the Microsoft 365 Consumer subscriber count as a standalone metric in FY26. The current filing explicitly states this metric was removed. The baseline reported 87.7 million subscribers as of March 31, 2025.
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Commercial remaining performance obligation increased 99% to $627 billion.
Commercial RPO nearly doubled year-over-year to $627 billion, up from an implied ~$315 billion in the prior year (calculated from the 99% growth rate). This reflects strong multi-year contract signings and deferred cloud revenue. The baseline did not provide a headline RPO figure in the highlights section.
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Microsoft Cloud revenue increased 20% to $42.4 billion.
Current filing · verify on EDGAR →
Microsoft Cloud revenue increased 29% to $54.5 billion.
Microsoft Cloud revenue grew 18.3% to $54.5 billion in Q3 FY26, accelerating from 20% growth to $42.4 billion in Q3 FY25. The $12.1 billion year-over-year increase reflects strong Azure and Microsoft 365 Commercial cloud demand.
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Microsoft Cloud gross margin percentage decreased to 69% driven by the impact of scaling our AI infrastructure.
Current filing · verify on EDGAR →
Microsoft Cloud gross margin percentage decreased to 66% driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.
Microsoft Cloud gross margin declined from 69% in Q3 FY25 to 66% in Q3 FY26, a 300-basis-point compression. The current filing attributes this to AI infrastructure investments and growing AI product usage, partially offset by efficiency gains. The baseline cited only "scaling our AI infrastructure."
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Revenue increased $8.2 billion or 13% with growth across each of our segments.
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Revenue increased $12.8 billion or 18% driven by growth in Microsoft Cloud.
Consolidated revenue growth accelerated from 13% ($8.2B increase) in Q3 FY25 to 18% ($12.8B increase) in Q3 FY26, reaching $82.9 billion. The acceleration was driven by Microsoft Cloud, particularly Azure.
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Operating income increased $4.4 billion or 16% with growth across each of our segments.
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Operating income increased $6.4 billion or 20% driven by growth in Productivity and Business Processes and Intelligent Cloud.
Operating income growth accelerated from 16% ($4.4B increase) in Q3 FY25 to 20% ($6.4B increase) in Q3 FY26, reaching $38.4 billion. The acceleration reflects strong revenue growth and operating leverage.
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For the nine months ended March 31, 2025 and 2024, we repurchased 23 million shares and 25 million shares of our common stock for $9.8 billion and $9.2 billion, respectively, through our share repurchase program.
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For the nine months ended March 31, 2026 and 2025, we repurchased 27 million shares and 23 million shares of our common stock for $13.3 billion and $9.8 billion, respectively, through our share repurchase program.
Microsoft repurchased $13.3 billion of stock in the first nine months of FY26, up from $9.8 billion in the prior-year period. The share count increased from 23 million to 27 million shares, reflecting higher average share prices.
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As of March 31, 2025, $549 million remained of our $60 billion share repurchase program.
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As of March 31, 2026, $44.0 billion remained of our $60 billion share repurchase program.
Remaining buyback authorization increased from $549 million to $44.0 billion, indicating Microsoft received a new $60 billion authorization during fiscal 2026 (likely announced in the September 2025 quarter, which is not covered by these filings).
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For the nine months ended March 31, 2025 and 2024, our Board of Directors declared dividends totaling $18.5 billion and $16.7 billion, respectively.
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For the nine months ended March 31, 2026 and 2025, our Board of Directors declared dividends totaling $20.3 billion and $18.5 billion, respectively.
Dividends declared increased from $18.5 billion in the first nine months of FY25 to $647 million in FY26, a $1.8 billion or 10% increase, reflecting a higher dividend rate and/or share count.
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Cash, cash equivalents, and short-term investments totaled $79.6 billion and $75.5 billion as of March 31, 2025 and June 30, 2024, respectively.
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Cash, cash equivalents, and short-term investments totaled $78.3 billion and $94.6 billion as of March 31, 2026 and June 30, 2025, respectively.
Cash and short-term investments declined from $94.6 billion at June 30, 2025 to $78.3 billion at March 31, 2026, a $17.7B decrease. This reflects capital deployment for buybacks, dividends, and capex, partially offset by operating cash flow.
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Equity and other investments were $16.0 billion and $14.6 billion as of March 31, 2025 and June 30, 2024, respectively.
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Equity and other investments were $33.7 billion and $15.4 billion as of March 31, 2026 and June 30, 2025, respectively.
Equity and other investments more than doubled from $15.4 billion at June 30, 2025 to $33.7 billion at March 31, 2026, an $18.3 billion increase. This likely reflects mark-to-market gains on the OpenAI equity method investment following the Recapitalization.
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Our effective tax rate was 18% for both the three months ended March 31, 2025 and 2024, and 18% for both the nine months ended March 31, 2025 and 2024.
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Our effective tax rate was 19% and 18% for the three months ended March 31, 2026 and 2025, respectively, and 20% and 18% for the nine months ended March 31, 2026 and 2025, respectively.
The effective tax rate increased from 18% to 19% for Q3 and from 18% to 20% for the nine-month period. The current filing attributes this to changes in the mix of earnings between U.S. and foreign jurisdictions and deferred tax expense on the OpenAI Recapitalization dilution gain.
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Industry Trends Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At Microsoft, we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers and users, industry trends, and competitive forces.
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Industry Trends and Opportunities Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At Microsoft, we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers and users, industry trends, and competitive forces.
The section header changed from "Industry Trends" to "Industry Trends and Opportunities," and the OpenAI partnership disclosure was moved here from the baseline's standalone paragraph. This is a structural reorganization of existing content.
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The Organisation for Economic Co-operation and Development (“OECD”) published its model rules “Tax Challenges Arising From the Digitalisation of the Economy - Global Anti-Base Erosion Model Rules (Pillar Two)” which established a global minimum corporate tax rate of 15% for certain multinational enterprises. Many countries have implemented or are in the process of implementing the Pillar Two legislation, which applies to Microsoft beginning in fiscal year 2025. While we do not currently estimate a material impact to our consolidated financial statements, we continue to monitor the impact as countries implement legislation and the OECD provides additional guidance.
The Pillar Two disclosure was removed from the Income Taxes section. This is a lifecycle removal: the baseline introduced the topic as a new development applying "beginning in fiscal year 2025"; one year later (Q3 FY26), the implementation is no longer news and the disclosure was not repeated.
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As a result of the TCJA, we are required to pay a one-time transition tax on deferred foreign income not previously subject to U.S. income tax. Under the TCJA, the transition tax is payable in interest-free installments over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. As of March 31, 2025, our eighth transition tax installment of $4.4 billion is short-term and payable in the first quarter of fiscal year 2026.
The TCJA transition tax disclosure was removed from Material Cash Requirements. This is a lifecycle removal: the baseline disclosed the eighth and final installment due in Q1 FY26; by Q3 FY26, that payment was made and the obligation is complete.
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Search and news advertising revenue (ex TAC) growth Revenue from search and news advertising excluding traffic acquisition costs (“TAC”) paid to Bing Ads network publishers and news partners
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Search advertising revenue (ex TAC) growth Revenue from search advertising excluding traffic acquisition costs (“TAC”) paid to Bing Ads network publishers and content partners
The metric was renamed from "Search and news advertising" to "Search advertising," and the definition changed from "news partners" to "content partners." This is a labeling update; the underlying revenue stream appears unchanged.
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Microsoft 365 Commercial cloud revenue growth Revenue from Microsoft 365 Commercial subscriptions, comprising Microsoft 365 Commercial, Enterprise Mobility + Security, the cloud portion of Windows Commercial, the per-user portion of Power BI, Exchange, SharePoint, Microsoft Teams, Microsoft 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot
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Microsoft 365 Commercial cloud revenue growth Revenue from Microsoft 365 Commercial subscriptions, comprising Microsoft 365 Commercial, Enterprise Mobility + Security, the cloud portion of Windows Commercial, the per-user portion of Power BI, Exchange, SharePoint, Microsoft Teams, Microsoft 365 Security and Compliance, and Microsoft 365 Copilot
Microsoft Viva was removed from the list of components in the Microsoft 365 Commercial cloud metric definition. This may reflect a reclassification or discontinuation of Viva as a separately-tracked component.
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Windows OEM and Devices revenue growth Revenue from sales of Windows Pro and non-Pro licenses sold through the OEM channel and sales of first-party Devices, including Surface, HoloLens, and PC accessories
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Windows OEM and Devices revenue growth Revenue from sales of Windows Pro and non-Pro licenses sold through the OEM channel and sales of first-party Devices, including Surface and PC accessories
HoloLens was removed from the list of first-party Devices in the metric definition. This likely reflects the discontinuation or wind-down of the HoloLens product line.
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Xbox content and services revenue growth Revenue from Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services
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Xbox content and services revenue growth Revenue from Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, and other cloud services
"Third-party disc royalties" was removed from the Xbox content and services metric definition. This reflects the ongoing shift from physical to digital game distribution.
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Business Combinations – Valuation of Intangible Assets Accounting for business combinations requires significant judgments when allocating the purchase price to the estimated fair values of assets acquired and liabilities assumed at the acquisition date. Determination of fair value involves estimates and assumptions which can be complex, most notably with respect to intangible assets. Critical estimates used in the valuation of intangible assets include, but are not limited to, the amount and timing of projected cash flows, useful lives, and discount rates. While management’s estimates of fair value are based on assumptions that are believed to be reasonable, these assumptions are inherently uncertain as they pertain to forward-looking views of our business and market conditions. The judgments made in this valuation process could materially impact our consolidated financial statements.
The "Business Combinations – Valuation of Intangible Assets" critical accounting estimate was removed from the Critical Accounting Estimates section. This is a lifecycle removal: the baseline included it following the Activision Blizzard acquisition; one year later, with no major acquisitions in the current period, the disclosure is no longer current.
Notes
OpenAI recapitalization drove $5.9B dilution gain; expanded datacenter leases; IRS audit unchanged; IDPC matter progressed to preliminary hearing.
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We have a long-term strategic partnership with OpenAI. In October 2025, we signed a new definitive agreement with OpenAI that extends this partnership. Additionally, OpenAI formed a public benefit corporation and completed a recapitalization (“OpenAI Recapitalization”). We have an investment of approximately 27 percent of OpenAI on an as-converted basis accounted for under the equity method of accounting. As a result of the OpenAI Recapitalization, we had a decrease in our proportionate ownership of OpenAI and recorded a dilution gain in other income (expense), net.
Microsoft disclosed a new definitive agreement with OpenAI signed in October 2025 and a recapitalization event that converted OpenAI into a public benefit corporation. Microsoft's ownership decreased to approximately 27% on an as-converted basis, triggering a dilution gain. The nine-month Other Income (Expense) note shows $5.9 billion in net gains from OpenAI investments for the nine months ended March 31, 2026, primarily from this dilution gain, compared to $2.7 billion in net losses in the prior year. This is a material non-cash gain that significantly boosted reported earnings.
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We calculate our equity method income or loss using the hypothetical liquidation at book value (“HLBV”) method because our liquidation rights and priorities differ from our underlying ownership interest. Under the HLBV method, we recognize income or loss based on the change in the amount we would receive if the net assets of the investee were distributed at book value.
Microsoft added disclosure that it uses the HLBV method to account for its OpenAI equity method investment, reflecting that its liquidation rights differ from its ownership percentage. This is a technical accounting detail that explains how Microsoft calculates its share of OpenAI's results and why the dilution gain was recognized. The HLBV method can produce income or loss patterns that differ from straight-line ownership percentages, particularly during recapitalizations.
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Additionally, as of March 31, 2026, restricted investments pursuant to a supplier agreement were $11.5 billion, with $2.8 billion included in short-term investments and $8.7 billion included in equity and other investments in our consolidated balance sheet.
Microsoft disclosed $11.5 billion in restricted investments tied to a supplier agreement, split between short-term and long-term classifications. This is a new disclosure not present in the prior year. The restriction suggests Microsoft has pledged these investments as collateral or committed them to secure supply (likely datacenter components given the company's capital expenditure trajectory). The magnitude is material and reduces liquidity flexibility.
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As of March 31, 2025 and June 30, 2024, other receivables related to activities to facilitate the purchase of server components were $10.8 billion and $10.5 billion, respectively, and are included in other current assets in our consolidated balance sheets.
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As of March 31, 2026 and June 30, 2025, other receivables related to activities to facilitate the purchase of server components were $17.8 billion and $8.2 billion, respectively, and are included in other current assets in our consolidated balance sheets.
Other receivables related to server component purchases increased from $10.8 billion at March 31, 2025 to $17.8 billion at March 31, 2026, a 65% increase. This reflects Microsoft's expanded arrangements to facilitate datacenter infrastructure procurement, consistent with the company's accelerating AI infrastructure buildout. The receivables represent amounts due from suppliers or partners in these facilitation arrangements.
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As of March 31, 2025, we had additional operating and finance leases, primarily for datacenters, that had not yet commenced of $4.4 billion and $94.8 billion, respectively. These operating and finance leases will commence between fiscal year 2025 and fiscal year 2030 with lease terms of 1 year to 20 years.
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As of March 31, 2026, we had additional leases, primarily for datacenters, that had not yet commenced of $196.6 billion. These leases will commence between fiscal year 2026 and fiscal year 2031 with lease terms of 1 year to 21 years.
Uncommenced datacenter leases increased from $99.2 billion total at March 31, 2025 ($4.4B operating + $94.8B finance) to $196.6 billion at March 31, 2026, nearly doubling. The current disclosure no longer breaks out operating vs. finance classification for uncommenced leases. This represents a massive expansion of Microsoft's committed datacenter footprint to support AI infrastructure, with obligations extending through fiscal 2031. These leases will convert to on-balance-sheet liabilities as they commence.
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Total finance lease liabilities | $ 39,214
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Total finance lease liabilities | $ 62,932
Finance lease liabilities increased from $39.2 billion at March 31, 2025 to $62.9 billion at March 31, 2026, a 60% increase. This reflects the commencement of previously uncommenced datacenter leases and new lease agreements. The weighted average remaining lease term for finance leases increased from 12 years to 13 years, and the weighted average discount rate increased from 4.1% to 4.4%, reflecting higher interest rates on new leases.
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As of March 31, 2025 and June 30, 2024, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $2.9 billion and $3.9 billion, respectively, and equity investments measured using the equity method were $6.8 billion and $6.0 billion, respectively.
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As of March 31, 2026 and June 30, 2025, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $9.3 billion and $2.9 billion, respectively, and equity investments measured using the equity method were $11.1 billion and $6.0 billion, respectively.
Equity method investments increased from $6.8 billion at March 31, 2025 to $11.1 billion at March 31, 2026, driven by the OpenAI recapitalization and continued funding. Separately, cost-method equity investments increased from $2.9 billion to $9.3 billion, reflecting new investments or reclassifications. The OpenAI investment is the largest equity method holding and now represents approximately 27% ownership on an as-converted basis.
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In October 2024, the IDPC provided LinkedIn with a final decision alleging GDPR violations and assessing a fine. In November 2024, LinkedIn appealed the final decision to the Irish courts, and the next hearing is scheduled for May 2025.
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In October 2024, the IDPC provided LinkedIn with a final decision alleging GDPR violations and assessing a fine. In November 2024, LinkedIn appealed the final decision to the Irish courts. A preliminary hearing was held in December 2025.
The IDPC matter progressed from a scheduled May 2025 hearing to a preliminary hearing that was actually held in December 2025. The matter remains in the Irish court system. The fine amount is not disclosed in either period. This is a procedural update on an ongoing regulatory matter; the appeal is proceeding through the courts.
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As of March 31, 2025, we accrued aggregate legal liabilities of $530 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $800 million in aggregate beyond recorded amounts are reasonably possible.
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As of March 31, 2026, we accrued aggregate legal liabilities of $647 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $400 million in aggregate beyond recorded amounts are reasonably possible.
Accrued legal liabilities increased from $530 million to $647 million, but the reasonably possible additional losses decreased from $800 million to $400 million. The net exposure (accrued + reasonably possible) decreased from $400M to $1.05 billion, suggesting favorable developments or settlements in certain matters. The disclosure continues to note that unfavorable outcomes could have a material adverse impact.
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Plaintiffs appealed the court’s order in August of 2023, and the appeal was argued in January of 2025. A hearing on the status of the stayed cases occurred in December of 2023.
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Plaintiffs appealed the court's order in August of 2023, and the appeal was argued in January of 2025. A hearing on the status of the stayed cases occurred in December of 2023. In July 2024, the court entered summary judgment in nine of the stayed cases on the grounds that plaintiffs had agreed to be bound by the general causation outcome in the consolidated cases.
The cell phone litigation disclosure added that in July 2024, the court entered summary judgment in nine of the stayed cases because plaintiffs had agreed to be bound by the general causation outcome in the consolidated cases. This is a favorable development for Microsoft, as it reduces the number of active cases. The appeal of the expert testimony order remains pending.
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In March 2024, we entered into an agreement with Inflection AI, Inc. (“Inflection”), pursuant to which we obtained a non-exclusive license to Inflection’s intellectual property. Reid Hoffman, a member of our Board of Directors, is a co-founder of and serves on the board of directors of Inflection. As of the date of the agreement with Inflection, Reprogrammed Interchange LLC (“Reprogrammed”) and entities affiliated with Greylock Ventures (“Greylock”) each held less than a 10% equity interest in Inflection. Mr. Hoffman may be deemed to beneficially own the shares held by Reprogrammed and Greylock by virtue of his relationship with such entities. Mr. Hoffman did not participate in any portions of the meetings of our Board of Directors or any committee thereof to review and approve the transaction with Inflection.
The related party transaction disclosure for the March 2024 Inflection AI agreement was removed. This is a lifecycle removal — the transaction was a discrete one-time licensing agreement that closed in March 2024, and the related party disclosure was required in the period of the transaction and immediately following periods. One year later, with no ongoing related party arrangements disclosed, the disclosure naturally drops out of the notes.
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Income Taxes – Improvements to Income Tax Disclosures In December 2023, the FASB issued a new standard to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this standard on our income tax disclosures.
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Income Taxes – Improvements to Income Tax Disclosures In December 2023, the Financial Accounting Standards Board (“FASB”) issued a new standard to improve income tax disclosures. The guidance requires additional disclosure of disaggregated income taxes paid and prescribes standardized categories for the components of the effective tax rate reconciliation. We will adopt the standard prospectively on the effective date in our annual reporting for fiscal year 2026.
Microsoft updated the income tax disclosure standard language from "will be effective" and "currently evaluating" to "will adopt the standard prospectively on the effective date" for fiscal year 2026. This is a minor wording change reflecting that the company is now closer to the adoption date and has completed its evaluation. The standard remains on track for fiscal 2026 adoption.
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We have recast certain prior period amounts on our consolidated cash flows statements to conform to the current period presentation. The recast of these prior period amounts had no impact on our consolidated balance sheets, consolidated income statements, or net cash from (used in) operations, investing, or financing on our consolidated cash flows statements.
Microsoft added disclosure that it recast certain prior period amounts on the cash flow statement for presentation conformity. The recast had no impact on the balance sheet, income statement, or net cash flows from operations, investing, or financing. This is a presentational reclassification within the cash flow statement line items, not a correction of an error or a change in accounting principle.
Risk Factors
Microsoft updated risk disclosures on AI regulation, trade policy volatility, cybersecurity requirements, and sustainability goals.
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Legislative and regulatory action is emerging in the areas of AI and content moderation, which could increase costs or restrict opportunity. For example, the EU’s AI Act may increase costs or impact the provision or operation of our AI models and services in the European market.
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Legislative and regulatory action is evolving with respect to AI, which could increase costs or restrict opportunity. For example, the EU’s AI Act may increase costs or impact the provision or operation of our AI models and services in the European market. AI regulatory areas include model and system development and deployment, frontier model safety, transparency, content provenance, digital replicas, and AI companions.
Microsoft expanded its disclosure of AI regulatory areas to include frontier model safety, transparency, content provenance, digital replicas, and AI companions. The baseline mentioned AI and content moderation generally; the current filing enumerates specific regulatory focus areas that may affect product development and compliance costs.
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Periods of intense diplomatic or armed conflict, such as the ongoing conflict in Ukraine, may result in (1) new and rapidly evolving sanctions and trade restrictions, which may impair trade with sanctioned individuals and countries, and (2) negative impacts to regional trade ecosystems among our customers, partners, and us.
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Increased geopolitical instabilities and changing U.S. Administration priorities create an unpredictable trade landscape. U.S. tariff, shifting AI export controls policies, and disagreements among governments on sanctions policies toward third countries, could increase operational costs, create uncertainty in the continuity of our products, and accelerate sovereignty initiatives among international partners and customers. The volatility of U.S. tariffs has triggered economic uncertainty and could impact cloud and devices supply chain cost competitiveness. The potential replacement of the rescinded AI Diffusion Rule, expanded export license conditions, and other potential AI-related rulemakings could adversely affect Microsoft’s business, strategy, and operations.
Microsoft added detailed language about U.S. Administration trade policy volatility, tariff uncertainty, AI export controls (including the rescinded AI Diffusion Rule), and the impact on supply chain cost competitiveness and customer sovereignty initiatives. The baseline focused on sanctions from armed conflict; the current filing addresses broader trade-policy unpredictability and AI-specific export controls.
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Cybersecurity: Legislative and regulatory actions related to cybersecurity may increase the costs associated with developing, implementing, or securing our products and services. The legal and regulatory environment in this area is complex and continues to evolve across multiple jurisdictions. As a result, there is considerable uncertainty regarding both current and future compliance obligations. This uncertainty increases the risk that we may incur additional operational costs, face regulatory enforcement actions, or encounter challenges in the development and deployment of our products.
Microsoft added a standalone cybersecurity regulatory subsection describing the complexity, multi-jurisdictional evolution, and uncertainty of compliance obligations. The baseline mentioned cybersecurity requirements briefly in a single sentence; the current filing elevates this to a distinct risk with enforcement and product-development implications.
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We are subject to evolving sustainability regulatory requirements and expectations, which exposes us to increased costs and legal and reputational risks. Laws, regulations, and policies relating to environmental, social, and governance matters are being developed and formalized in Europe, the U.S., and elsewhere, which may include specific, target-driven frameworks and disclosure requirements. In addition, we have established and publicly announced goals and commitments to become carbon negative, water positive, zero waste, and protect more land than we use. Any failure or perceived failure to pursue or fulfill our sustainability goals and commitments or to satisfy various sustainability reporting standards or regulatory requirements within the timelines we announce, or at all, could result in claims and lawsuits, regulatory actions, or damage to our reputation, each of which may adversely affect our business, operations, financial condition, and results of operations.
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Environmental, Social, and Governance: Laws, regulations, and policies relating to environmental, social, and governance matters are being developed and formalized in Europe, the U.S., and elsewhere, which may include greenhouse gas emissions and energy usage caps, as well as specific, target-driven environmental, social, and governance frameworks and disclosure requirements. In addition, in 2020 we announced goals to become carbon negative, water positive, and zero waste by 2030. AI development and deployment has and may continue to raise energy use and emissions, making it harder to meet these goals. Any failure or perceived failure to meet our sustainability goals, or to meet various sustainability regulatory requirements, could result in claims and lawsuits, regulatory actions, penalties, or damage to our reputation, each of which could adversely affect our business, operations, financial condition, and results of operations.
Microsoft added explicit disclosure that AI development and deployment increases energy use and emissions, making it harder to meet 2030 carbon-negative, water-positive, and zero-waste goals. The baseline described sustainability goals and regulatory risks generally; the current filing links AI workload growth directly to goal attainment difficulty and adds greenhouse gas / energy usage caps as potential regulatory constraints.
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Cyberthreats are constantly evolving and becoming increasingly sophisticated and complex, increasing the difficulty of detecting and successfully defending against them. Threat actors may also utilize emerging technologies, such as AI and machine learning.
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Cyberthreats are constantly evolving and becoming increasingly sophisticated and complex, increasing the difficulty of detecting and successfully defending against them. Threat actors also utilize emerging technologies such as AI and machine learning to, among other things, increase the speed and scale of attacks by generating and refining malicious content and code, automate reconnaissance and targeting, and rapidly iterate on attack techniques, which can broaden the scope, intensity, and sophistication of campaigns and reduce the time we have to identify and mitigate emerging threats.
Microsoft expanded its disclosure of how threat actors use AI and machine learning, adding specific attack methods: generating malicious content and code, automating reconnaissance and targeting, and rapidly iterating on attack techniques. The baseline mentioned AI/ML use generically; the current filing details how these technologies broaden attack scope, intensity, and sophistication, and reduce Microsoft's response time.
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Our internal environment continues to evolve. Often, we are early adopters of new devices and technologies. We embrace new ways of sharing data and communicating internally and with partners and customers using methods such as social networking and other consumer-oriented technologies. Increasing use of generative AI models in our internal systems may create new attack surfaces or methods for adversaries.
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Our internal environment continues to evolve. Often, we are early adopters of new devices and technologies. We embrace new ways of sharing data and communicating internally and with partners and customers using methods such as social networking and other consumer-oriented technologies. Increasing use of AI, including models, algorithms, copilots, and autonomous or semi-autonomous agents, in our internal or third-party systems may create new attack surfaces or methods for adversaries.
Microsoft broadened the description of AI use in internal systems from "generative AI models" to "AI, including models, algorithms, copilots, and autonomous or semi-autonomous agents," and extended the scope to "internal or third-party systems." This reflects a wider range of AI technologies and integration points that may create new attack surfaces.
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Further, the rapid evolution of AI technologies and use cases may outpace the development, deployment, and effectiveness of security products, controls, and industry standards, particularly in complex customer environments, increasing the risk that security measures will be insufficient to address newly emerging threats.
Microsoft added new disclosure that the rapid evolution of AI technologies and use cases may outpace security product development, controls, and industry standards, particularly in complex customer environments. This is a new risk statement not present in the baseline, highlighting the pace mismatch between AI innovation and security readiness.
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Our global business exposes us to operational and economic risks. Our customers, employees, and infrastructure are located throughout the world and a significant part of our revenue comes from international sales. The global nature of our business creates operational, economic, and geopolitical risks. Global, regional, and local economic developments, monetary policy, restrictions on international trade, such as tariffs and other controls on imports or exports, inflation, and recession, as well as political and military disputes, may adversely affect our results of operations.
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Our global business exposes us to operational and economic risks. Our customers, employees, and infrastructure are located throughout the world and a significant part of our revenue comes from international sales. The global nature of our business creates operational, economic, and geopolitical risks. Global, regional, and local economic developments, monetary policy, geopolitical tension, particularly between the U.S. and Europe, restrictions on international trade, such as tariffs and other controls on imports or exports, inflation, and recession, as well as political and military disputes, could adversely affect our results of operations.
Microsoft added "geopolitical tension, particularly between the U.S. and Europe" to the list of global business risks. The baseline listed economic developments, monetary policy, trade restrictions, inflation, recession, and political/military disputes; the current filing inserts U.S.-Europe geopolitical tension as a specific risk factor. The current filing also changed "may adversely affect" to "could adversely affect."
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For example, in March 2022 we completed our acquisition of Nuance Communications, Inc., and in October 2023 we completed our acquisition of Activision Blizzard, Inc. (“Activision Blizzard”). In January 2023 we announced the third phase of our OpenAI strategic partnership.
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For example, in October 2023 we completed our acquisition of Activision Blizzard, Inc. Additionally, we have a long-term strategic partnership with OpenAI.
Microsoft removed the Nuance acquisition reference (March 2022, now over three years old) and simplified the OpenAI partnership description from "third phase" announcement to "long-term strategic partnership." The change reflects passage of time and a more general characterization of the OpenAI relationship.
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In addition, an acquisition may be subject to challenge even after it has been completed. For example, the Federal Trade Commission continues to challenge our Activision Blizzard acquisition and could, if successful, alter or unwind the transaction.
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Acquisitions, joint ventures, and strategic alliances could have an adverse effect on our business. We expect to continue making acquisitions and entering into joint ventures and strategic alliances as part of our long-term business strategy. For example, in October 2023 we completed our acquisition of Activision Blizzard, Inc.
The Activision Blizzard FTC challenge risk factor language was retained and updated (reorganized/edited, not rescinded).
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If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings. We acquire other companies and intangible assets and may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangibles. We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We test goodwill for impairment at least annually. Factors that may be a change in circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which we participate. We have recorded, and may in the future be required to record, a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations.
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We have recorded, and may in the future be required to record, a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations. In addition, these transactions and arrangements have been and may be subject to legal and regulatory challenge. These events could adversely affect our business, operations, financial condition, and results of operations.
Microsoft condensed the goodwill impairment risk factor, removing the detailed description of impairment testing procedures, annual testing cadence, and specific impairment indicators (stock price decline, cash flow estimates, growth rates). The current filing retains the core disclosure that impairment charges could occur and negatively affect results, but omits the procedural and trigger-factor detail present in the baseline.
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Additionally, features that rely on generative AI may be susceptible to unanticipated security threats from adversaries as we add new generative AI features to our services while continuously developing our understanding of security risks and protection methods in the new field of generative AI.
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Additionally, software, including features that rely on or were generated by AI can be susceptible to cyberattacks.
Microsoft simplified and broadened the AI vulnerability disclosure. The baseline described "unanticipated security threats" in the context of developing understanding of generative AI risks; the current filing states more directly that software relying on or generated by AI can be susceptible to cyberattacks, without the developmental framing.
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To defend against security threats to our internal infrastructure, our cloud-based services, and our customers’ systems, we must continuously engineer more secure products and services, enhance security, threat detection, and reliability features, escalate and improve the deployment of software updates to address security vulnerabilities in our own products as well as those provided by others in a timely manner, develop mitigation technologies that help to secure customers from attacks even when software updates are not deployed, maintain the digital security infrastructure that protects the integrity of our network, products, and services, and provide security tools such as firewalls, anti-virus software, and advanced security and information about the need to deploy security measures and the impact of doing so.
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To defend against security threats to our internal infrastructure, our cloud-based services, and our customers’ systems, we must take a complex and multifaceted approach. This includes continuously engineering more secure products and services, and enhancing security, threat detection, and reliability features, including through the deployment of AI-based and automated defenses.
Microsoft added "AI-based and automated defenses" to its list of defensive measures. The current filing also restructured the paragraph, breaking the single-sentence list into multiple sentences. The substantive addition is the explicit mention of AI-based defenses as part of the security approach.
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Inadequate account security or organizational security practices, including those of companies we have acquired or those of the third parties we utilize, have resulted and may result in unauthorized access to our systems and data, including customer systems and data. For example, system administrators may fail to timely remove employee account access when no longer appropriate.
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Inadequate account security or organizational security practices, including those of companies we have acquired or those of the third parties we utilize, have resulted and may result in unauthorized access to our systems and data, including customer systems and data. For example, passwords may not be rotated and employee access may not be updated or removed on a timely basis.
Microsoft expanded the example of inadequate account security practices from "system administrators may fail to timely remove employee account access" to include "passwords may not be rotated" as an additional specific failure mode. This broadens the disclosure of internal security hygiene risks.
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Further, third parties that we utilize may also face the AI-based enhanced cybersecurity risk as described elsewhere in these risk factors.
Microsoft added a new sentence noting that third parties the company utilizes may also face AI-enhanced cybersecurity risks. This extends the AI threat disclosure to the supply chain and third-party ecosystem, acknowledging that vendors and partners face the same AI-driven attack evolution.
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Challenges or failures in applying security patches to all hardware and devices connected to our systems, including end-of-life and end-of-support equipment, have and may continue to result in unauthorized access to our systems and data in the future.
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Challenges or failures to update or apply security patches to all hardware and devices connected to our systems, including end-of-life and end-of-support equipment, have and may continue to result in unauthorized access to our systems and data in the future.
Microsoft changed "failures in applying" to "failures to update or apply," adding "update" as a distinct failure mode. This broadens the disclosure to include both the update process and the application of patches as potential failure points.
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Customers and third parties granted access to their systems may fail to update their systems, continue to run software or operating systems we no longer support, or may fail to timely install or enable security patches, or may otherwise fail to adopt adequate security practices.
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Customers and third parties granted access to customer systems may fail to update their systems, continue to run software or operating systems we no longer support, may fail to timely install or enable security patches, or may otherwise fail to adopt adequate security practices, including in response to enhanced AI-based threats.
Microsoft added "including in response to enhanced AI-based threats" to the list of customer security practice failures. This explicitly links customer security hygiene to the AI threat landscape, noting that customers may not adapt their practices to the new AI-driven attack methods.
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The success of these transactions and arrangements depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones, as well as the acquired companies’ ability to meet our policies and processes in areas such as data governance, privacy, and cybersecurity.
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The success of these transactions and arrangements depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones, as well as the acquired companies’ ability to meet our policies and processes in areas such as data governance, privacy, digital safety, responsible AI, and cybersecurity.
Microsoft added "digital safety" and "responsible AI" to the list of policy areas that acquired companies must meet. The baseline listed data governance, privacy, and cybersecurity; the current filing expands this to include digital safety and responsible AI as integration requirements.
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Periods of intense diplomatic or armed conflict, such as the ongoing conflict in Ukraine, may result in (1) new and rapidly evolving sanctions and trade restrictions, which may impair trade with sanctioned individuals and countries, and (2) negative impacts to regional trade ecosystems among our customers, partners, and us.
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Periods of intense diplomatic or armed conflict, such as the conflicts in Ukraine and the Middle East could continue to result in (1) new and rapidly evolving sanctions and trade restrictions, which may impair trade with sanctioned individuals and countries, and (2) negative impacts to regional trade ecosystems among our customers, partners, and us.
Microsoft updated the geopolitical conflict reference from "the ongoing conflict in Ukraine" to "the conflicts in Ukraine and the Middle East," and changed "may result" to "could continue to result." This reflects the addition of Middle East conflicts and a shift to language suggesting these impacts are ongoing rather than potential.
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Laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, fines against us, or reputational damage. The growth of our Internet- and cloud-based services internationally relies increasingly on the movement of data across national boundaries. Legal requirements relating to the collection, storage, handling, and transfer of personal data continue to evolve. For example, while the EU-U.S. Data Privacy Framework (“DPF”) has been recognized as adequate under EU law to allow transfers of personal data from the EU to certified companies in the U.S., the DPF is subject to further legal challenge which could cause the legal requirements for data transfers from the EU to be uncertain. EU data protection authorities have and may again block the use of certain U.S.-based services that involve the transfer of data to the U.S. In the EU and other markets, potential new rules and restrictions on the flow of data across borders could increase the cost and complexity of delivering our products and services.
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Handling of personal data: Legal requirements relating to the collection, storage, handling, and transfer of personal data globally continue to evolve. The growth of our Internet- and cloud-based services internationally relies on the movement of data across national boundaries. Data protection authorities and governments in the EU and other markets have and may again restrict and/or block the use of services that involve the transfer of data across borders. New and evolving rules and restrictions on the flow of data across borders could increase the cost and complexity of delivering our products and services. In addition, the EU General Data Protection Regulation and other similar regulations impose a range of compliance obligations regarding the handling of personal data. New requirements related to the use of data, including the Data Act, add additional rules and restrictions on the use of data in our products and services.
Microsoft removed the detailed discussion of the EU-U.S. Data Privacy Framework (DPF), including its adequacy recognition and potential legal challenges. The current filing retains the general statement that data protection authorities may restrict cross-border data transfers, but omits the DPF-specific context. The current filing also added a reference to the Data Act as a new requirement. This is a simplification and update of the data-transfer risk disclosure.
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In addition, the EU General Data Protection Regulation (“GDPR”), which applies to all of our activities conducted from an establishment in the EU or related to products and services offered in the EU, imposes a range of compliance obligations regarding the handling of personal data. More recently, the EU has been developing new requirements related to the use of data, including in the Digital Markets Act, the Digital Services Act, and the Data Act, that add additional rules and restriction on the use of data in our products and services. Engineering efforts to build and maintain capabilities to facilitate compliance with these laws involve substantial expense and the diversion of engineering resources from other projects. We might experience reduced demand for our offerings if we are unable to engineer products that meet our legal duties or help our customers meet their obligations under these and other data regulations, or if our implementation to comply makes our offerings less attractive. Compliance with these obligations depends in part on how particular regulators interpret and apply them. If we fail to comply, or if regulators assert we have failed to comply (including in response to complaints made by customers), it may lead to regulatory enforcement actions, which can result in significant monetary penalties, private lawsuits, reputational damage, blockage of product offerings or of international data transfers, and loss of customers. The highest fines assessed under GDPR have recently been increasing, especially against large technology companies, and European data protection authorities have taken action to block or remove services from their markets. Jurisdictions around the world, such as China, India, and states in the U.S. have adopted, or are considering adopting or expanding, laws and regulations imposing obligations regarding the collection, handling, and transfer of personal data.
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In addition, the EU General Data Protection Regulation and other similar regulations impose a range of compliance obligations regarding the handling of personal data. New requirements related to the use of data, including the Data Act, add additional rules and restrictions on the use of data in our products and services.
The GDPR compliance and enforcement risk factor language was retained and updated (reorganized/edited, not rescinded).
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Our investment in gaining insights from data is becoming central to the value of the services we deliver to customers, including AI services, to operational efficiency and key opportunities in monetization, and to customer perceptions of quality. Our ability to use data in this way may be constrained by regulatory developments that impede realizing the expected return from this investment. Ongoing legal analyses, reviews, and inquiries by regulators of Microsoft practices, or relevant practices of other organizations, may result in burdensome or inconsistent requirements, including data sovereignty and localization requirements, affecting the location, movement, collection, and use of our customer and internal employee data as well as the management of that data. Compliance with applicable laws and regulations regarding personal data may require changes in services, business practices, or internal systems that result in increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based firms. Compliance with data regulations might limit our ability to innovate or offer certain features and functionality in some jurisdictions where we operate. Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged noncompliant activity, negative publicity, and diversion of management time and effort.
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Compliance with existing, expanding, or new laws and regulations may involve significant costs and operational efforts, or require changes in products or business practices that could adversely affect our results of operations. Noncompliance could result in the imposition of penalties, criminal sanctions, or orders to cease the alleged noncompliant activity.
The data insights and regulatory constraints risk factor language was retained and updated (reorganized/edited, not rescinded).
Previous filing · view on EDGAR → · paraphrased
We are subject to a variety of new, existing, and evolving legal and regulatory requirements that could adversely affect our results of operations. We are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that may apply to our products and online services offerings, and those that impose requirements related to user privacy, cybersecurity, telecommunications, data storage and protection, digital accessibility, advertising, and online safety. [...] Government agencies closely scrutinize us under U.S. and foreign competition laws. Governments are actively enforcing competition laws and regulations and enacting new regulations to intervene in digital markets, and this includes markets such as the EU, the United Kingdom, the U.S., and China. Some jurisdictions also allow competitors or consumers to assert claims of anti-competitive conduct. U.S. and foreign antitrust authorities have previously brought enforcement actions and continue to scrutinize our business. [...] Competition law enforcement actions and court decisions along with new market regulations may result in fines or hinder our ability to provide the benefits of our software to consumers and businesses, reducing the attractiveness of our products and the revenue that comes from them. New competition law actions or obligations under market regulation schemes could be initiated, potentially using previous actions as precedent. The outcome of such actions, or steps taken to avoid them, could adversely affect us in a variety of ways, including causing us to withdraw products from or modify products for certain markets, decreasing the value of our assets, adversely affecting our ability to monetize our products, or inhibiting our ability to consummate acquisition or impose conditions on acquisitions that may reduce their value, which may adversely affect our business, financial condition, and results of operations.
Current filing · verify on EDGAR →
Competition laws and new market regulation: Government agencies closely scrutinize us under U.S. and foreign competition laws. Governments are actively enforcing competition laws and regulations and enacting new regulations to intervene in digital markets, and this includes markets such as the EU, the United Kingdom, the U.S., and China. Some jurisdictions also allow competitors or consumers to assert claims of anti-competitive conduct. U.S. and foreign antitrust authorities have previously brought enforcement actions and continue to scrutinize our business. Competition law enforcement actions and court decisions along with new market regulations may result in fines or hinder our ability to provide the benefits of our software to consumers and businesses, reducing the attractiveness of our products and the revenue that comes from them. New competition law actions or obligations under market regulation schemes could be initiated, potentially using previous actions as precedent.
Microsoft removed the detailed description of potential competition law outcomes, including product withdrawals, asset value decreases, monetization impacts, and acquisition restrictions. The current filing retains the core disclosure that enforcement actions may result in fines or hinder product benefits, but omits the specific remedies and consequences listed in the baseline. This is a condensation of the competition law risk disclosure.
Previous filing · verify on EDGAR →
Laws and regulations relating to anti-corruption and trade could result in increased costs, fines, criminal penalties, or reputational damage. The Foreign Corrupt Practices Act (“FCPA”) and other anti-corruption laws and regulations (“Anti-Corruption Laws”) prohibit corrupt payments by our employees, vendors, or agents, and the accounting provisions of the FCPA require us to maintain accurate books and records and adequate internal controls. From time to time, we receive inquiries from authorities in the U.S. and elsewhere which may be based on reports from employees and others about our business activities outside the U.S. and our compliance with Anti-Corruption Laws. Periodically, we receive such reports directly and investigate them, and also cooperate with investigations by U.S. and foreign law enforcement authorities. Most countries in which we operate also have competition laws that prohibit competitors from colluding or otherwise attempting to reduce competition between themselves. While we devote substantial resources to our U.S. and international compliance programs and have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments and collusive activity, our employees, partners, vendors, or agents may violate our policies. Our failure to comply with Anti-Corruption Laws or competition laws could result in significant fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our reputation, which could adversely affect our business, financial condition, and results of operations.
Current filing · verify on EDGAR →
Anti-corruption: The Foreign Corrupt Practices Act (“FCPA”) and other anti-corruption laws and regulations (“Anti-Corruption Laws”) prohibit corrupt payments by our employees, vendors, or agents, and the accounting provisions of the FCPA require us to maintain accurate books and records and adequate internal controls. From time to time, we receive inquiries from authorities in the U.S. and elsewhere which may be based on reports from employees and others about our business activities and our compliance with Anti-Corruption Laws. Periodically, we receive such reports directly and investigate them and also cooperate with investigations by U.S. and foreign law enforcement authorities.
Microsoft removed the discussion of competition laws prohibiting collusion, the description of compliance programs and internal controls, and the detailed consequences of non-compliance (fines, criminal sanctions, business prohibitions, reputational damage). The current filing retains the core FCPA disclosure and the statement that the company receives and investigates inquiries, but omits the compliance program detail and consequence enumeration. This is a condensation of the anti-corruption risk disclosure.
Previous filing · verify on EDGAR →
Our business with government customers may present additional uncertainties. We derive substantial revenue from government contracts. Government contracts generally can present risks and challenges not present in private commercial agreements. For instance, we may be subject to government audits and investigations relating to these contracts, we could be suspended or debarred as a governmental contractor, we could incur civil and criminal fines and penalties, and under certain circumstances contracts may be rescinded.
Current filing · verify on EDGAR →
Our business with government customers may present additional uncertainties. We derive substantial revenue from government contracts. Government contracts and regulatory requirements can present risks and challenges not present in private commercial agreements. For instance, we are subject to government audits and investigations relating to these contracts, and we are required to provide assurance and attestations about our products and processes. If we do not satisfy contractual or regulatory requirements, we could be suspended or debarred as a governmental contractor, we could incur civil and criminal fines and penalties, and under certain circumstances contracts may be rescinded.
Microsoft added "and we are required to provide assurance and attestations about our products and processes" to the government contract risk disclosure. The baseline mentioned audits, investigations, suspension, debarment, and fines; the current filing adds the assurance and attestation requirement as a distinct compliance obligation. The current filing also changed "may be subject" to "are subject" (audits/investigations) and "generally can present" to "can present," making the language more definitive.
Previous filing · verify on EDGAR →
In addition, our international growth strategy includes certain markets, the developing nature of which presents several risks, including deterioration of social, political, labor, or economic conditions in a country or region, and difficulties in staffing and managing foreign operations. Emerging nationalist and protectionist trends and concerns about human rights, the environment, and political expression in specific countries may significantly alter the trade and commercial environments. Changes to trade policy or agreements as a result of populism, protectionism, or economic nationalism may result in higher tariffs, local sourcing initiatives, and non-local sourcing restrictions, export controls, investment restrictions, or other developments that make it more difficult to operate and sell our products in foreign countries.
Current filing · verify on EDGAR →
In addition, our international growth strategy includes certain markets, the developing nature of which presents several risks, including deterioration of social, political, labor, or economic conditions in a country or region, and difficulties in staffing and managing foreign operations. Emerging nationalist and protectionist trends and concerns about human rights, the environment, and political expression in specific countries may significantly alter the trade and commercial environments. Changes to trade policy or agreements as a result of populism, protectionism, or economic nationalism may result in higher tariffs, local sourcing initiatives, and non-local sourcing restrictions, disagreements among governments on export controls and sanctions toward third countries, investment restrictions, or other developments that make it more difficult to operate and sell our products in foreign countries.
Microsoft changed "export controls" to "disagreements among governments on export controls and sanctions toward third countries." This shifts the framing from export controls as a unilateral policy to disagreements among governments on export controls and sanctions, highlighting the risk of inconsistent or conflicting policies across jurisdictions.
Previous filing · verify on EDGAR →
Abrupt political change, terrorist activity, and armed conflict, such as the ongoing conflict in Ukraine, pose economic and other risks, which may negatively impact our ability to sell to and collect from customers, increase our operating costs, or otherwise disrupt our operations in markets both directly and indirectly impacted by such events.
Current filing · verify on EDGAR →
Abrupt political change, terrorist activity, and armed conflict, such as the conflicts in Ukraine and the Middle East, pose economic and other risks, which may negatively impact our ability to sell to and collect from customers, increase our operating costs, or otherwise disrupt our operations in markets both directly and indirectly impacted by such events.
Microsoft updated the geopolitical conflict reference from "the ongoing conflict in Ukraine" to "the conflicts in Ukraine and the Middle East." This reflects the addition of Middle East conflicts to the list of geopolitical risks affecting operations.
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Financial Statements
Primary statements from SEC XBRL (companyfacts). Labels and figures as reported — not generated by the model.
Consolidated Statements of Operations (Unaudited)
| Description | Q3 ended Mar 31, 2026 | Q3 ended Mar 31, 2025 |
|---|---|---|
| Revenue: | ||
| Total revenue / net sales | 82,886 | 70,066 |
| Cost of revenue / cost of sales | 26,828 | 21,919 |
| Gross profit | 56,058 | 48,147 |
| Operating expenses: | ||
| Sales and marketing | 6,814 | 6,212 |
| Research and development | 8,915 | 8,198 |
| General and administrative | 1,931 | 1,737 |
| Total operating expenses | 17,660 | 16,147 |
| Operating income | 38,398 | 32,000 |
| Interest expense | 778.0 | 594.0 |
| Other income/(expense), net | 942.0 | (623.0) |
| Income before income taxes | 39,340 | 31,377 |
| Income tax expense/(benefit) | 7,562 | 5,553 |
| Net income | 31,778 | 25,824 |
| Basic earnings per share | 4.28 | 3.47 |
| Diluted earnings per share | 4.27 | 3.46 |
Consolidated Balance Sheets (Unaudited)
| Description | Mar 31, 2026 | Mar 31, 2025 |
|---|---|---|
| Current assets: | ||
| Cash and equivalents | 32,105 | 28,828 |
| Short-term investments | 46,167 | 50,790 |
| Accounts receivable, net | 60,041 | 51,700 |
| Inventories | 508.0 | |
| Prepaid expenses and other current assets | 35,797 | 24,478 |
| Total current assets | 175,329 | 156,644 |
| Property, plant and equipment, net | 283,228 | 183,939 |
| Operating lease right-of-use assets, net | 24,403 | 24,475 |
| Finite-lived intangible assets, net | 19,325 | 23,968 |
| Goodwill | 119,661 | 119,329 |
| Deferred income taxes and other assets | 38,599 | 38,234 |
| Other long-term assets | 33,683 | 16,035 |
| TOTAL ASSETS | 694,228 | 562,624 |
| Current liabilities: | ||
| Current portion of long-term debt | 8,839 | 2,999 |
| Accounts payable | 37,513 | 26,250 |
| Accrued liabilities | 24,552 | 22,937 |
| Income taxes payable | 3,563 | 6,805 |
| Deferred revenue, current | 50,924 | 44,636 |
| Other current liabilities | 11,270 | 10,579 |
| Total current liabilities | 136,661 | 114,206 |
| Long-term debt | 31,423 | 39,882 |
| Operating lease liabilities | 16,703 | 17,686 |
| Deferred income taxes and other liabilities | 2,899 | 2,522 |
| Other long-term liabilities | 92,175 | 66,437 |
| Total liabilities | 279,861 | 240,733 |
| Shareholders' equity: | ||
| Common stock | 115,069 | 106,965 |
| Accumulated other comprehensive income (loss) | (3,228) | (4,833) |
| Retained earnings (deficit) | 302,526 | 219,759 |
| Total shareholders' equity | 414,367 | 321,891 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 694,228 | 562,624 |
Consolidated Statements of Cash Flows (Unaudited)
| Description | Q3 ended Mar 31, 2026 | Q3 ended Mar 31, 2025 |
|---|---|---|
| Operating Activities: | ||
| Net cash from operating activities | 46,679 | 37,044 |
| Investing Activities: | ||
| Net cash from investing activities | (27,405) | (12,714) |
| Financing Activities: | ||
| Net cash from financing activities | (11,351) | (13,036) |
| Net increase/(decrease) in cash | 7,809 | 11,346 |
Amounts in millions USD; EPS as reported. Line labels are presentation-friendly mappings of filer XBRL tags — not a re-audit of the full statements. Use EDGAR for interactive notes and detail. Interactive statements & notes on EDGAR ↗
Source-verified from EDGAR · Narrative written by AI · Jul 24, 2026 · How we verify