Microsoft reported a strong second quarter for its 2026 financial year, driven by cloud and AI sales. The company said revenue reached $81.3 billion for the last couple of months to December 31, which is a 17% increase from that time the year before. This came from Microsoft’s quarterly earnings release…
Operating income rose to $38.3 billion, which is a 21% rise, while net income on a GAAP basis went up to $38.5 billion, up 60%, according to the company. Diluted earnings per share reached $5.16, also up 60%. Microsoft said constant currency numbers showed similar strength, easing the anxieties some had about foreign exchange effects.
Satya Nadella, chairman and chief executive officer of Microsoft, relates the performance to commercial demand for AI tools. He said, “We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises.” He added, “We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.”
Amy Hood, executive vice president and chief financial officer, pointed to cloud growth. “Microsoft Cloud revenue crossed $50 billion this quarter, reflecting the strong demand for our portfolio of services,” she said. “We exceeded expectations across revenue, operating income, and earnings per share.”
How Did Cloud And AI Sales Influence These Numbers?
Microsoft Cloud revenue reached $51.5 billion, up 26%, according to the company’s breakdown. Commercial remaining performance obligation went up 110% to $625 billion, showing long term customer commitments linked to cloud contracts.
The Intelligent Cloud unit produced a 29% rise with $32.9 billion in revenue. Azure and other cloud services grew 39%, making it the fastest growing large business under Microsoft during the quarter. The company says this performance is mainly thanks to heavy usage of AI workloads on Azure.
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Productivity and Business Processes revenue came to $34.1 billion, up 16%. Microsoft 365 Commercial cloud revenue went up 17%, while Microsoft 365 Consumer cloud revenue grew 29%. LinkedIn revenue increased 11%, and Dynamics 365 revenue rose 19%, according to Microsoft.
The More Personal Computing unit recorded $14.3 billion in revenue, down 3%. Windows OEM and Devices revenue went up 1%, Xbox content and services revenue went down 5%, and search and news advertising revenue excluding traffic acquisition costs rose 10%. Microsoft said shareholder returns reached $12.7 billion through dividends and share repurchases, up 32% YoY.
Why Did The OpenAI Investment Change Everything?
Microsoft reported a $7.6 billion net income impact from its investment in OpenAI during the quarter. The company explained that this figure reflected accounting gains tied to valuation changes and profit participation, rather than cash from customer sales.
The earnings release showed how this affected comparisons. In the same quarter last year, Microsoft recorded a $939 million negative impact from the same investment. In 2026, the OpenAI gain lifted GAAP net income and diluted earnings per share by $1.02, based on Microsoft’s non GAAP reconciliation.
Microsoft said these non GAAP measures help investors understand operational performance alongside standard accounting results. The company made clear that the OpenAI impact may change from quarter to quarter, depending on valuation movements.
The scale of the gain underlined how closely OpenAI sits inside Microsoft’s business. OpenAI workloads run on Azure, and Microsoft has woven AI tools across products such as Microsoft 365 and GitHub. The accounting result showed that this relationship now carries visible weight inside Microsoft’s earnings.
Microsoft said it will discuss outlook and forward looking guidance during its earnings call. For this quarter, the figures alone showed that cloud and AI activity delivered both sales growth and massive increase in profits, placing Microsoft in a strong position at the start of 2026.
