Microsoft Company reported search and information promoting income excluding visitors acquisition prices reached $3.8 billion for the second quarter of fiscal yr 2026, representing progress of 10% in comparison with the identical interval final yr, in accordance with monetary paperwork launched on January 28, 2026. The Redmond-based expertise firm disclosed these outcomes throughout its quarterly earnings announcement, marking the slowest quarterly progress fee for the search promoting section since fiscal yr 2024, at the same time as the general enterprise demonstrated robust momentum throughout cloud and synthetic intelligence companies.

The search promoting progress deceleration occurred towards a backdrop of extraordinary total efficiency. Whole income reached $81.3 billion and elevated 17%, whereas Microsoft Cloud income surpassed $50 billion for the primary time, rising 26% year-over-year. In response to Satya Nadella, chairman and chief government officer, throughout the earnings name on January 28, “This quarter, the Microsoft Cloud surpassed $50 billion in income for the primary time, up 26% year-over-year, reflecting the power of our platform and accelerating demand.”

The search promoting section delivered $3.812 billion in income excluding visitors acquisition prices for the quarter ended December 31, 2025, in comparison with $3.558 billion within the corresponding interval of fiscal yr 2025, in accordance with the corporate’s investor metrics. Progress measured in fixed foreign money reached 9%, reflecting international change headwinds that impacted efficiency throughout Microsoft’s enterprise segments. The deceleration from 21% growth rates maintained all through fiscal yr 2025 represents a big moderation within the promoting enterprise trajectory.

Amy Hood, government vice chairman and chief monetary officer, addressed the efficiency throughout the earnings name. “Microsoft Cloud income crossed $50 billion this quarter, reflecting the robust demand for our portfolio of companies,” Hood acknowledged. “We exceeded expectations throughout income, working revenue, and earnings per share.” The corporate didn’t present particular commentary throughout the earnings name in regards to the search promoting slowdown, focusing as a substitute on cloud infrastructure enlargement and synthetic intelligence capabilities.

Extra Private Computing section dynamics

The Extra Private Computing section, which homes the search and promoting enterprise, generated $14.3 billion in income for the quarter, representing a 3% lower in comparison with the prior yr interval. Working revenue for this section reached $3.8 billion, down from $3.9 billion within the second quarter of fiscal yr 2025, in accordance with section outcomes disclosed within the monetary statements. The section confronted headwinds from Xbox content material and companies income, which declined 5% on a GAAP foundation and 6% in fixed foreign money.

Home windows OEM and Units income elevated 1% on a GAAP foundation whereas remaining comparatively unchanged in fixed foreign money. The minimal progress displays ongoing challenges within the private pc market, although Microsoft has maintained steady licensing income via enterprise agreements and system partnerships. In response to the metrics knowledge, Home windows OEM and Units progress has remained within the low single digits all through fiscal yr 2025 and into fiscal yr 2026, starting from 1% to six% throughout current quarters.

The section’s efficiency contrasted sharply with Microsoft’s different enterprise divisions. The Productiveness and Enterprise Processes section generated $34.1 billion in income and elevated 16%, whereas the Clever Cloud section produced $32.9 billion in income and elevated 29%. The divergence underscores the various progress trajectories throughout Microsoft’s portfolio, with cloud and productiveness companies demonstrating considerably stronger momentum than consumer-focused choices within the Extra Private Computing division.

Gaming income weak point contributed to the section’s total decline. Xbox content material and companies income decreased 5% to roughly $3.0 billion for the quarter, primarily based on calculations derived from historic income patterns. Microsoft has built-in gaming advertising inventory via its informal video games portfolio, together with titles from King akin to Sweet Crush, although the corporate doesn’t individually disclose gaming promoting income in its monetary statements.

Synthetic intelligence infrastructure investments speed up

Microsoft disclosed capital expenditures of $37.5 billion for the second quarter of fiscal yr 2026, representing a considerable enhance from $22.6 billion within the first quarter and $22.6 billion within the corresponding interval of fiscal yr 2025, in accordance with the capital expenditures assertion. The dramatic escalation in infrastructure spending displays Microsoft’s aggressive buildout of synthetic intelligence capability to assist rising demand for cloud companies and AI-powered purposes throughout its buyer base.

Nadella detailed the infrastructure enlargement throughout the earnings name. “All up, we added practically one gigawatt of complete capability this quarter alone,” he acknowledged, describing the dimensions of datacenter deployment. The corporate introduced datacenter investments in seven international locations throughout the quarter to assist native knowledge residency necessities and sovereignty concerns more and more prioritized by enterprise clients navigating regulatory frameworks throughout completely different jurisdictions.

The infrastructure enlargement consists of vital advances in Microsoft’s customized silicon capabilities. “Earlier this week, we introduced on-line our Maia 200 accelerator,” Nadella defined throughout the name. “Maia 200 delivers 10+ petaFLOPS at FP4 precision with over 30% improved TCO, in comparison with the newest era {hardware} in our fleet.” The deployment technique consists of scaling the brand new chip for inferencing and artificial knowledge era for the corporate’s superintelligence workforce, in addition to powering Copilot companies and Foundry platform choices.

Microsoft linked its Fairwater datacenter websites in Atlanta and Wisconsin via an AI WAN to create what the corporate describes as a first-of-its-kind AI superfactory. In response to Nadella, “Fairwater’s two-story design and liquid cooling permit us to run larger GPU densities and thereby enhance each efficiency and latencies for high-scale coaching.” The technical structure demonstrates Microsoft’s deal with optimizing tokens per watt per greenback, a metric the corporate recognized as crucial for long-term competitiveness in cloud infrastructure.

The substantial infrastructure investments contributed to elevated working bills. The Extra Private Computing section’s working bills reached $4.1 billion, up from $3.9 billion within the prior yr interval, whereas working bills throughout all segments totaled $17.0 billion in comparison with $16.2 billion one yr earlier. The elevated spending helps Microsoft’s strategic positioning as AI workloads turn out to be more and more computationally intensive and distributed throughout geographic areas.

Cloud companies reveal sustained momentum

Microsoft Cloud income reached $51.5 billion for the quarter and elevated 26% on a GAAP foundation and 24% in fixed foreign money, in accordance with the investor metrics disclosure. The milestone represents the primary time the corporate’s mixed cloud companies have exceeded $50 billion in a single quarter, reflecting sustained enterprise adoption of Azure, Microsoft 365, and associated cloud choices throughout world markets and business verticals.

Azure and different cloud companies income elevated 39% on a GAAP foundation and 38% in fixed foreign money, sustaining the accelerated progress trajectory established in current quarters. The efficiency exceeded the 40% progress fee achieved within the first quarter of fiscal yr 2026, although represented a slight moderation from that peak. In response to metrics knowledge, Azure progress has persistently remained within the excessive 30% vary all through fiscal yr 2025, with charges of 31% in Q2 FY25, 33% in Q3 FY25, and 39% in This autumn FY25 earlier than reaching 40% in Q1 FY26.

Business remaining efficiency obligation elevated 110% to $625 billion, in accordance with the press launch, representing a dramatic acceleration from the 51% progress to $392 billion reported within the first quarter of fiscal year 2026. The backlog determine displays contracted future income commitments from enterprise clients and signifies sustained demand for Microsoft’s cloud infrastructure and companies over an prolonged time horizon.

The Clever Cloud section generated working revenue of $13.9 billion on income of $32.9 billion, yielding an working margin of roughly 42%. Value of income for the section reached $13.6 billion, up from $9.4 billion within the prior yr interval, reflecting the infrastructure investments required to assist the accelerating cloud enterprise progress. Working bills for Clever Cloud totaled $5.5 billion in comparison with $5.3 billion one yr earlier.

Productiveness companies keep double-digit enlargement

The Productiveness and Enterprise Processes section produced income of $34.1 billion and elevated 16% on a GAAP foundation and 14% in fixed foreign money. Working revenue for the section reached $20.6 billion in comparison with $16.9 billion within the second quarter of fiscal yr 2025, yielding an working margin of roughly 60% that demonstrates the excessive profitability of Microsoft’s productiveness software program and enterprise course of purposes.

Microsoft 365 Business cloud income elevated 17% on a GAAP foundation and 14% in fixed foreign money, sustaining constant progress charges throughout a number of quarters. In response to metrics knowledge, Microsoft 365 Business cloud income progress has remained within the 15-18% vary all through fiscal yr 2025 and into fiscal yr 2026, with quarterly charges of 16%, 12%, 18%, 17%, and 17% throughout the previous 5 reporting durations.

Seat progress for Microsoft 365 Business choices reached 6% year-over-year, in keeping with the expansion fee maintained all through fiscal yr 2025, in accordance with investor metrics. The steady seat enlargement signifies Microsoft is sustaining its enterprise buyer base whereas extracting further income per person via premium options, AI-powered capabilities, and expanded service choices built-in into the Microsoft 365 platform.

Microsoft 365 Shopper cloud income elevated 29% on a GAAP foundation and 27% in fixed foreign money, representing substantial acceleration from the 26% GAAP progress and 25% fixed foreign money progress achieved within the first quarter of fiscal yr 2026. The patron subscription enterprise has demonstrated bettering momentum, with progress charges increasing from 8% in Q2 FY25 to 10% in Q3 FY25, 20% in This autumn FY25, 26% in Q1 FY26, and now 29% in Q2 FY26, in accordance with the metrics development.

LinkedIn revenue elevated 11% on a GAAP foundation and 10% in fixed foreign money, representing acceleration from the ten% GAAP and 9% fixed foreign money progress achieved within the first quarter. The skilled networking platform has maintained single-digit to low double-digit progress all through current quarters, with charges of 9%, 7%, 9%, 10%, and now 11% throughout the previous 5 reporting durations. LinkedIn’s contribution to complete Productiveness and Enterprise Processes income continues increasing because the platform develops promoting capabilities and premium subscription choices for enterprise professionals.

Dynamics 365 income elevated 19% on a GAAP foundation and 17% in fixed foreign money, in keeping with progress charges maintained all through fiscal yr 2025. The enterprise useful resource planning and buyer relationship administration purposes have demonstrated steady enlargement, with quarterly progress charges starting from 16% to 23% throughout current reporting durations, in accordance with metrics knowledge.

Monetary efficiency and shareholder returns

Web revenue on a GAAP foundation reached $38.5 billion for the quarter and elevated 60% in comparison with the second quarter of fiscal yr 2025. The substantial enhance resulted from web beneficial properties of $7.6 billion from investments in OpenAI, which boosted diluted earnings per share by $1.02 in accordance with the non-GAAP reconciliation offered within the press launch. Excluding the impression from OpenAI investments, web revenue on a non-GAAP foundation reached $30.9 billion and elevated 23% on a GAAP foundation and 21% in fixed foreign money.

Diluted earnings per share on a GAAP foundation reached $5.16 and elevated 60%, whereas non-GAAP diluted earnings per share totaled $4.14 and elevated 24% on a GAAP foundation and 21% in fixed foreign money. The non-GAAP figures exclude the $1.02 per share profit from OpenAI funding beneficial properties within the present quarter and the $0.12 per share detrimental impression from OpenAI funding losses within the second quarter of fiscal yr 2025.

Working revenue totaled $38.3 billion and elevated 21% on a GAAP foundation and 19% in fixed foreign money. The working margin reached roughly 47% primarily based on complete income of $81.3 billion, demonstrating Microsoft’s means to keep up profitability whereas concurrently investing closely in synthetic intelligence infrastructure and capability enlargement throughout a number of geographies.

Microsoft returned $12.7 billion to shareholders via dividends and share repurchases throughout the second quarter of fiscal yr 2026, representing a rise of 32% in comparison with the second quarter of fiscal yr 2025, in accordance with the press launch. Dividend funds totaled $6.8 billion whereas share repurchases reached $5.9 billion primarily based on money movement assertion knowledge. The capital allocation demonstrates Microsoft’s dedication to returning worth to shareholders at the same time as the corporate maintains aggressive funding in progress alternatives.

OpenAI relationship and strategic positioning

The OpenAI funding generated web beneficial properties of $7.6 billion throughout the quarter, representing a considerable swing from the $939 million in web losses recorded within the second quarter of fiscal yr 2025. The mark-to-market accounting therapy displays adjustments within the valuation of Microsoft’s stake within the synthetic intelligence analysis group, which the corporate has restructured through multiple partnership modifications all through fiscal yr 2025 and monetary yr 2026.

Nadella referenced the increasing AI enterprise throughout the earnings name. “We’re to start with phases of AI diffusion and its broad GDP impression,” he acknowledged. “Actually, even in these early innings, we’ve constructed an AI enterprise that’s bigger than a few of our largest franchises that took a long time to construct.” The commentary positions synthetic intelligence as a elementary progress driver throughout Microsoft’s product portfolio slightly than a standalone enterprise section.

The corporate added assist for GPT 5.2 and Claude 4.5 fashions on its Foundry platform throughout the quarter, in accordance with Nadella’s ready remarks. “Already, over 1,500 clients have used each Anthropic and OpenAI fashions on Foundry,” he famous, indicating rising enterprise adoption of enormous language mannequin capabilities for enterprise purposes. The mannequin catalog enlargement displays Microsoft’s technique of offering broad mannequin option to clients whereas optimizing for value, latency, and efficiency necessities throughout completely different workloads.

Microsoft achieved a 50% enhance in throughput for OpenAI inferencing workloads powering Copilot companies, in accordance with Nadella’s commentary throughout the name. The efficiency enchancment demonstrates ongoing optimization of the infrastructure supporting AI-powered options throughout Microsoft’s product portfolio, together with Microsoft 365 Copilot, GitHub Copilot, and Dynamics 365 Copilot choices.

Advertising implications and aggressive positioning

The search promoting progress slowdown carries vital implications for the advertising and marketing group. The ten% progress fee represents a considerable deceleration from the 21% charges maintained throughout fiscal year 2025, suggesting potential headwinds in advertiser demand, aggressive stress from bigger platforms, or strategic prioritization of different enterprise segments over promoting income optimization.

Microsoft’s total advertising revenue surpassed $20 billion annually by April 2025, with search and information promoting representing a considerable portion of that determine alongside LinkedIn Advertising Options and gaming promoting stock. The general promoting enterprise has benefited from AI integration, with analysis displaying Copilot achieving 73% higher click-through rates in comparison with conventional search promoting, in accordance with knowledge printed by Microsoft Promoting.

The corporate maintains roughly 5% world search market share via Bing, competing primarily towards Google’s dominant place whereas differentiating via conversational AI options and integration with Home windows, Edge, and Workplace merchandise. Microsoft Advertising disclosed that actual match key phrases obtain absolute precedence over Efficiency Max campaigns when competing for similar placements, no matter Advert Rank variations, representing a notable level of differentiation from competitor platforms.

LinkedIn’s 11% income progress suggests the skilled networking platform continues attracting advertising and marketing funding regardless of broader financial uncertainties. The platform has emerged as the highest B2B promoting channel, with research showing 113% return on ad spend and 39% of B2B promoting budgets allotted to LinkedIn in accordance with benchmark knowledge printed in 2025. The platform enhanced its Revenue Attribution Report with company-level measurement capabilities, enabling entrepreneurs to trace marketing campaign affect from first contact to closed offers.

Outlook and ahead steering

Microsoft didn’t present particular forward-looking steering for search promoting income within the third quarter of fiscal yr 2026 throughout the earnings name. The corporate acknowledged it might present detailed outlook commentary via supplemental slides made out there on the Microsoft Investor Relations web site following the decision, in keeping with its customary observe for quarterly earnings bulletins.

The business bookings progress of 230% on a GAAP foundation and 228% in fixed foreign money suggests sustained enterprise demand for Microsoft’s cloud and productiveness companies, although the determine consists of the business portion of LinkedIn and could also be influenced by giant particular person contracts. Business remaining efficiency obligation of $625 billion represents contracted future income that may movement via Microsoft’s enterprise segments over an prolonged time horizon, offering visibility into sustained progress alternatives.

Capital expenditures reached $72.4 billion for the primary six months of fiscal yr 2026 primarily based on quarterly figures of $34.9 billion in Q1 and $37.5 billion in Q2. The aggressive infrastructure funding trajectory helps Microsoft’s positioning in synthetic intelligence and cloud companies but additionally represents vital near-term capital allocation that might impression different enterprise priorities together with promoting platform growth and optimization.

The corporate generated working money movement of $80.8 billion for the six-month interval ended December 31, 2025, up from $56.5 billion within the corresponding interval of fiscal yr 2025, in accordance with money movement statements. The substantial money era gives Microsoft with monetary flexibility to maintain infrastructure investments, return capital to shareholders, and pursue strategic alternatives throughout enterprise segments together with promoting expertise and platform capabilities.

Timeline

Abstract

Who: Microsoft Company, led by Chairman and Chief Govt Officer Satya Nadella and Chief Monetary Officer Amy Hood, introduced monetary outcomes affecting shareholders, enterprise clients, builders, promoting companions, and the broader expertise ecosystem.

What: Microsoft reported second quarter fiscal yr 2026 income of $81.3 billion representing 17% progress, with Microsoft Cloud income surpassing $50 billion for the primary time and rising 26%. Search and information promoting income excluding visitors acquisition prices reached $3.8 billion and elevated 10%, marking the slowest quarterly progress fee for the section since fiscal yr 2024. The corporate disclosed capital expenditures of $37.5 billion, web revenue of $38.5 billion together with $7.6 billion in OpenAI funding beneficial properties, and business remaining efficiency obligation of $625 billion.

When: The outcomes cowl the quarter ended December 31, 2025, and have been introduced on January 28, 2026, throughout the firm’s earnings convention name and webcast.

The place: Microsoft’s enterprise operates globally throughout cloud infrastructure, productiveness software program, and promoting platforms together with Bing search engine, Edge browser, LinkedIn skilled networking, and gaming properties, with datacenter enlargement introduced in seven international locations throughout the quarter to assist native knowledge residency necessities.

Why: Search promoting progress decelerated from 21% charges maintained all through fiscal yr 2025 to 10% within the second quarter of fiscal yr 2026 as Microsoft prioritized substantial infrastructure investments totaling $72.4 billion within the first six months of the fiscal yr to assist synthetic intelligence and cloud companies enlargement, whereas total firm efficiency exceeded expectations throughout income, working revenue, and earnings per share pushed by Azure progress of 39% and Microsoft Cloud reaching the $50 billion quarterly milestone.


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