Microsoft Q2: Cloud Revenue Soars Amid Gaming Decline
Microsoft has recently released its financial results for the second quarter of the 2026 fiscal year. The software giant reported a revenue of $81.3 billion, marking a 17% increase compared to the previous year. Net income reached $30.9 billion, reflecting a 23% rise.
Cloud Revenue Growth Amid Gaming Declines
Microsoft’s cloud revenue has shown remarkable growth, exceeding $50 billion for the quarter. This figure represents a 26% year-over-year increase. Azure and other cloud services contributed a substantial 39% growth. CFO Amy Hood noted the strong demand for their cloud services portfolio.
PC Shipments and Device Revenue
During the holiday quarter, PC shipments saw an unexpected increase due, in part, to the end of Windows 10 support. The International Data Corporation (IDC) reported that manufacturers have been actively pulling forward inventory to manage potential tariffs and address a global memory shortage. Overall, Windows Original Equipment Manufacturer (OEM) revenue rose by 5%, although the device revenue, which combines Surface and Windows OEM sales, only showed a modest 1% growth year-over-year.
Declining Gaming Revenue
In contrast to cloud revenue, the gaming sector faced significant challenges. Xbox hardware revenue fell by 32% year-over-year for the recent quarter, marking a three-year decline. Overall gaming revenue decreased by 9%, with Xbox content and services—including Game Pass—down by 5%. Factors contributing to this downturn include less robust sales of titles like Call of Duty: Black Ops 7 and heightened competition from other games.
- Xbox hardware revenue: -32% year-over-year
- Overall gaming revenue: -9%
- Xbox content and services revenue: -5%
Microsoft 365 and Other Services Growth
Microsoft 365 has also seen significant growth in consumer cloud revenue at 29% year-over-year. Additionally, commercial cloud revenue for Microsoft 365 grew by 17%. LinkedIn revenue increased by 11%, showcasing overall strength in the Intelligent Cloud segment.
Capital Expenditure and AI Investments
For the quarter, Microsoft’s capital expenditures totaled $37.5 billion, primarily investing in CPUs and GPUs to enhance cloud and AI capabilities. The company revealed a new AI chip, the Maia 200, aimed at powering large-scale AI workloads, indicating ongoing investments in artificial intelligence.
Conclusion
Microsoft’s results for Q2 reflect a clear divide between its soaring cloud services and the struggling gaming sector. While the Intelligent Cloud continues to thrive, challenges in the More Personal Computing division, including gaming hardware declines, highlight the evolving landscape of the tech industry.
