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Microsoft Reports Strong Q3 2026 Earnings with Significant Revenue and Net Income Growth

10-QEarningsbullishImpact70

MSFT Price

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Why It Matters

Microsoft's strong Q3 2026 performance, particularly the significant growth in service and other revenue, demonstrates the company's ability to expand its high-margin offerings and maintain its market leadership. This robust financial health provides a solid foundation for future investments and shareholder returns, reinforcing investor confidence in its long-term growth strategy

Quarterly Report Snapshot

Reporting Period End
March 31, 2026
Total Revenue
$82.89 B
Net Income
$31.78 B
Diluted EPS
$4.27

Summary

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Microsoft reported strong financial results for the third quarter of fiscal year 2026, ending March 31, 2026. Total revenue increased by 18.3% year-over-year to $82.89 billion, primarily driven by a significant 23.8% increase in service and other revenue. Net income rose by 23.1% to $31.78 billion, and diluted EPS grew by 23.4% to $4.27. Operating income also saw a substantial increase of 23.2% to $38.40 billion. The company generated strong cash flow from operations, reaching $46.68 billion for the quarter. These results highlight Microsoft's continued strength in its service offerings and overall financial health

Score70

Score Rationale

bullish

Microsoft delivered strong Q3 2026 financial results, exceeding expectations with substantial year-over-year growth in both revenue and net income.

Performance & Outlook

Total Revenue

Up 18.3% YoY
Q3 2025
$70,066 M
Q3 2026
$82,886 M

Net Income

Up 23.1% YoY
Q3 2025
$25,824 M
Q3 2026
$31,778 M

Diluted EPS

Up 23.4% YoY
Q3 2025
$3.46
Q3 2026
$4.27

Key Business Updates

  1. Service and Other Revenue Growth$67.80 B

    Service and other revenue increased significantly to $67.80 billion in Q3 2026, up from $54.75 billion in Q3 2025, driving overall revenue growth.

  2. Operating Income Growth$38.40 B

    Operating income for Q3 2026 reached $38.40 billion, a 23.2% increase from $31.16 billion in the prior year, demonstrating strong operational efficiency.

  3. Cash Flow from Operations$46.68 B

    Net cash provided by operating activities was $46.68 billion for the three months ended March 31, 2026, highlighting robust cash generation.

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MSFT Market Context

SectorTechnology
IndustrySoftware
Market Cap$2.98T
Shares Outstanding7.43B
Public Float7.42B
Public Float %99.9%
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Original Filing Text

SEC filing text preserved from the raw item store.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the Quarterly Period Ended March 31, 2026

 

 

OR

 

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the Transition Period From to

Commission File Number 001-37845

 

MICROSOFT CORPORATION

Washington

 

91-1144442

(STATE OF INCORPORATION)

 

(I.R.S. ID)

 

ONE MICROSOFT WAY, REDMOND, Washington 98052-6399

(425) 882-8080

www.microsoft.com/investor

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

 

 

 

 

Common stock, $0.00000625 par value per share

 

MSFT

 

Nasdaq

3.125% Notes due 2028

 

MSFT

 

Nasdaq

2.625% Notes due 2033

 

MSFT

 

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☒

Accelerated Filer ☐

Non-accelerated Filer ☐

Smaller Reporting Company ☐

 

 

Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding as of April 23, 2026

 

 

 

Common Stock, $0.00000625 par value per share

 

7,428,434,704 shares

 

 

 

 

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended March 31, 2026

INDEX

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

a)

Income Statements for the Three and Nine Months Ended March 31, 2026 and 2025

3

 

 

 

 

 

b)

Comprehensive Income Statements for the Three and Nine Months Ended March 31, 2026 and 2025

4

 

 

 

 

 

c)

Balance Sheets as of March 31, 2026 and June 30, 2025

5

 

 

 

 

 

d)

Cash Flows Statements for the Three and Nine Months Ended March 31, 2026 and 2025

6

 

 

 

 

 

e)

Stockholders’ Equity Statements for the Three and Nine Months Ended March 31, 2026 and 2025

7

 

 

 

 

 

f)

Notes to Financial Statements

8

 

 

 

 

 

g)

Report of Independent Registered Public Accounting Firm

30

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

 

 

 

 

Item 4.

Controls and Procedures

48

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

Item 1.

Legal Proceedings

49

 

 

 

 

Item 1A.

Risk Factors

49

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

 

 

 

 

 

Item 5.

Other Information

66

 

 

 

 

Item 6.

Exhibits

67

 

 

 

 

SIGNATURE

68

 

2

PART I

Item 1

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INCOME STATEMENTS

 

(In millions, except per share amounts) (Unaudited)

 

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2026

2025

 

 

2026

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

Product

$

15,089

 

$

15,319

$

47,462

$

46,810

 

Service and other

67,797

 

54,747

 

194,370

 

 

 

158,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

82,886

 

70,066

 

 

 

241,832

 

 

 

205,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

2,733

 

 

3,037

9,160

 

10,187

 

Service and other

24,095

 

18,882

 

67,689

 

53,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

26,828

 

21,919

 

76,849

 

63,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

56,058

 

48,147

 

 

 

164,983

141,466

 

Research and development

8,915

 

8,198

 

25,565

 

23,659

 

Sales and marketing

6,814

 

6,212

 

19,115

 

18,369

 

General and administrative

1,931

 

1,737

 

5,669

 

5,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

38,398

 

32,000

 

114,634

 

94,205

 

Other income (expense), net

 

 

942

 

 

 

(623

)

 

 

7,253

 

 

 

(3,194

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

39,340

 

 

 

31,377

 

 

 

121,887

 

 

 

91,011

 

Provision for income taxes

7,562

5,553

 

23,904

16,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

31,778

$

25,824

$

97,983

$

74,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

4.28

 

 

$

3.47

 

 

$

13.19

 

 

$

10.03

 

Diluted

 

$

4.27

 

 

$

3.46

 

 

$

13.14

 

 

$

9.99

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,426

 

 

 

7,434

 

 

 

7,430

 

 

 

7,434

 

Diluted

 

 

7,445

 

 

 

7,461

 

 

 

7,457

 

 

 

7,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

3

PART I

Item 1

 

COMPREHENSIVE INCOME STATEMENTS

 

(In millions) (Unaudited)

 

Three Months Ended
March 31,

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2026

 

2025

 

 

2026

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

31,778

 

 

$

25,824

 

 

$

97,983

 

 

$

74,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

Net change related to derivatives

0

 

 

(20

)

 

 

(6

)

 

 

4

 

Net change related to investments

(239

)

 

450

 

 

 

287

 

 

 

1,130

 

Translation adjustments and other

(287

)

 

353

 

 

 

(162

)

 

 

(377

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

(526

)

 

783

 

 

 

119

 

 

 

757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

$

31,252

 

 

$

26,607

 

 

$

98,102

 

 

$

75,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

4

PART I

Item 1

 

BALANCE SHEETS

 

(In millions) (Unaudited)

 

 

 

 

March 31,

2026

June 30,
2025

 

 

 

 

 

 

 

 

Assets

Current assets:

Cash and cash equivalents

$

32,105

$

30,242

Short-term investments

46,167

64,323

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents, and short-term investments

78,272

94,565

Accounts receivable, net of allowance for doubtful accounts of $794 and $944

60,041

69,905

Inventories

1,219

938

Other current assets

35,797

25,723

 

 

 

 

 

 

 

Total current assets

175,329

191,131

Property and equipment, net of accumulated depreciation of $111,723 and $93,653

283,228

204,966

Operating lease right-of-use assets

 

 

24,403

 

 

 

24,823

 

Equity and other investments

33,683

15,405

Goodwill

119,661

119,509

Intangible assets, net

19,325

22,604

Other long-term assets

38,599

40,565

 

 

 

 

 

 

 

 

Total assets

$

694,228

$

619,003

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

37,513

$

27,724

Current portion of long-term debt

 

 

8,839

 

 

 

2,999

 

Accrued compensation

11,270

13,709

Short-term income taxes

3,563

 

7,211

Short-term unearned revenue

50,924

64,555

Other current liabilities

24,552

25,020

 

 

 

 

 

 

 

Total current liabilities

136,661

141,218

Long-term debt

31,423

40,152

Long-term income taxes

 

 

27,941

 

 

 

25,986

 

Long-term unearned revenue

2,753

2,710

Deferred income taxes

2,899

2,835

Operating lease liabilities

 

 

16,703

 

 

 

17,437

 

Other long-term liabilities

61,481

45,186

 

 

 

 

 

 

 

Total liabilities

279,861

275,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

Stockholders’ equity:

Common stock and paid-in capital – shares authorized 24,000; outstanding 7,429 and 7,434

115,069

109,095

Retained earnings

302,526

237,731

Accumulated other comprehensive loss

(3,228

)

(3,347

)

 

 

 

 

 

 

 

Total stockholders’ equity

414,367

343,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

$

694,228

$

619,003

 

 

 

Refer to accompanying notes.

5

PART I

Item 1

 

CASH FLOWS STATEMENTS

 

(In millions) (Unaudited)

 

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2026

2025

 

 

2026

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

Operations

 

Net income

$

31,778

 

$

25,824

$

97,983

$

74,599

 

Adjustments to reconcile net income to net cash from operations:

 

 

 

 

 

 

 

 

 

Depreciation, amortization, and other

10,167

 

7,734

 

27,512

 

 

 

20,116

 

Stock-based compensation expense

3,081

 

2,980

 

9,283

 

 

 

8,901

 

Net recognized losses (gains) on investments and derivatives

(1,280

)

708

 

(7,304

)

3,387

 

Deferred income taxes

2,602

 

(2,244

)

9,539

 

(4,835

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

(4,707

)

(2,461

)

8,347

5,598

 

Inventories

(161

)

 

 

52

(283

)

390

 

Other current assets

758

 

1,076

 

215

642

 

Other long-term assets

(932

)

(518

)

(2,614

)

(3,368

)

Accounts payable

2,320

1,179

2,903

1,221

 

Unearned revenue

 

 

(166

)

 

 

(1,032

)

(13,067

)

(12,923

)

Income taxes

 

 

2,296

 

 

1,298

 

(1,568

)

(1,081

)

Other current liabilities

2,539

2,839

(166

)

576

 

Other long-term liabilities

(1,616

)

(391

)

 

 

(3,286

)

 

 

292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operations

46,679

 

37,044

 

 

 

127,494

 

 

 

93,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of debt, maturities of 90 days or less

 

 

0

 

 

0

0

 

(5,746

)

Repayments of debt

0

 

(2,250

)

(3,000

)

(3,216

)

Common stock issued

541

546

 

 

 

1,489

 

1,508

 

Common stock repurchased

(4,627

)

(4,781

)

(17,692

)

(13,874

)

Common stock cash dividends paid

(6,756

)

(6,169

)

(19,687

)

(17,913

)

Other, net

(509

)

(382

)

(1,877

)

(1,614

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing

(11,351

)

(13,036

)

(40,767

)

(40,855

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing

 

 

 

 

 

 

 

 

Additions to property and equipment

(30,876

)

(16,745

)

(80,146

)

(47,472

)

Acquisition of companies, net of cash acquired and divestitures, and purchases of intangible and other assets

(258

)

(981

)

(1,291

)

(4,235

)

Purchases of investments

(12,006

)

(4,474

)

(39,522

)

(8,144

)

Maturities of investments

11,976

 

6,721

 

 

 

30,424

11,461

 

Sales of investments

6,358

 

2,161

 

 

 

15,311

6,688

 

Other, net

 

 

(2,599

)

 

 

604

 

(9,445

)

(325

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing

(27,405

)

(12,714

)

(84,669

)

(42,027

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

(114

)

52

 

(195

)

(120

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

7,809

11,346

 

1,863

10,513

 

Cash and cash equivalents, beginning of period

24,296

 

17,482

 

 

 

30,242

 

 

 

18,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

$

32,105

$

28,828

$

32,105

$

28,828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

6

PART I

Item 1

 

STOCKHOLDERS’ EQUITY STATEMENTS

 

(In millions, except per share amounts) (Unaudited)

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2026

2025

 

 

 

2026

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and paid-in capital

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

$

112,788

$

104,829

 

 

$

109,095

 

 

$

100,923

 

Common stock issued

541

 

 

546

 

 

 

1,489

 

 

 

1,508

 

Common stock repurchased

(1,341

)

(1,390

)

 

 

(4,796

)

 

 

(4,366

)

Stock-based compensation expense

3,081

 

2,980

 

 

 

9,283

 

 

 

8,901

 

Other, net

0

 

0

 

 

 

(2

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

115,069

106,965

 

 

 

115,069

 

 

 

106,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

280,789

203,482

 

 

 

237,731

 

 

 

173,144

 

Net income

31,778

 

25,824

 

 

 

97,983

 

 

 

74,599

 

Common stock cash dividends

(6,756

)

 

(6,168

)

 

 

(20,277

)

 

 

(18,508

)

Common stock repurchased

(3,285

)

 

(3,379

)

 

 

(12,911

)

 

 

(9,476

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

302,526

 

219,759

 

 

 

302,526

 

 

 

219,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

(2,702

)

(5,616

)

 

 

(3,347

)

 

 

(5,590

)

Other comprehensive income (loss)

(526

)

783

 

 

 

119

 

 

 

757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

(3,228

)

(4,833

)

 

 

(3,228

)

 

 

(4,833

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

$

414,367

$

321,891

 

 

$

414,367

 

 

$

321,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.91

 

 

$

0.83

 

 

$

2.73

 

 

$

2.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to accompanying notes.

7

PART I

Item 1

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 — ACCOUNTING POLICIES

Accounting Principles

Our unaudited interim consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Microsoft Corporation fiscal year 2025 Form 10-K filed with the U.S. Securities and Exchange Commission on July 30, 2025.

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.

Principles of Consolidation

The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated.

Estimates and Assumptions

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.

Financial Instruments

Investments

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

8

PART I

Item 1

 

Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.

Equity investments with readily determinable fair values are generally measured at fair value. Equity investments that are not recorded at fair value are measured using the equity method of accounting when required or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). For equity investments recorded at fair value, we perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in fair value are recorded in other income (expense), net. Equity method investments may be recorded on a lag of up to three months when sufficient financial information is not available in a timely manner. For equity method investments recorded on a lag, we recognize the impact of intervening events that have a material impact on our consolidated financial statements in the period in which they occurred.

Investments that are considered variable interest entities (“VIEs”) are evaluated to determine whether we are the primary beneficiary of the VIE, in which case we would be required to consolidate the entity. We evaluate whether we have (1) the power to direct the activities that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We have determined we are not the primary beneficiary of any of our VIE investments. Therefore, our VIE investments are not consolidated and the majority are accounted for under the equity method of accounting.

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. Refer to Note 3 – Other Income (Expense), Net for additional information. 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. We have made total funding commitments of $13 billion, of which $11.8 billion has been funded as of March 31, 2026.

Derivatives

Derivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.

For derivative instruments designated as fair value hedges, gains and losses are recognized in other income (expense), net with offsetting gains and losses on the hedged items. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.

For derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of other comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.

For derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.

9

PART I

Item 1

 

Fair Value Measurements

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

•
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our Level 1 investments include U.S. government securities, common and preferred stock, and mutual funds. Our Level 1 derivative assets and liabilities include those actively traded on exchanges.
•
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 investments include commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Our Level 2 derivative assets and liabilities include certain cleared swap contracts and over-the-counter forward, option, and swap contracts.
•
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 assets and liabilities include investments in corporate notes and bonds, municipal securities, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.

We measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections.

Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

Contract Balances and Other Receivables

As of March 31, 2026 and June 30, 2025, long-term accounts receivable, net of allowance for doubtful accounts, was $5.1 billion and $5.2 billion, respectively, and is included in other long-term assets in our consolidated balance sheets.

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. 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.

We record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of March 31, 2026 and June 30, 2025, our financing receivables, net were $2.6 billion and $4.3 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets.

We record an allowance for doubtful accounts which reflects our best estimate of credit losses inherent in the accounts receivable and financing receivable balances. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

10

PART I

Item 1

 

Recent Accounting Guidance

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.

Income Statement – Disaggregation of Income Statement Expenses

In November 2024, the FASB issued a new standard to expand disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated income statements in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The standard will be effective for us beginning with our annual reporting for fiscal year 2028 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our disclosures.

NOTE 2 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.

The components of basic and diluted EPS were as follows:

 

(In millions, except per share amounts)

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2026

 

 

2025

 

 

 

2026

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available for common shareholders (A)

 

$

31,778

 

 

$

25,824

 

 

$

97,983

 

 

$

74,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average outstanding shares of common stock (B)

 

7,426

 

 

7,434

 

 

 

7,430

 

 

 

7,434

Dilutive effect of stock-based awards

 

19

 

 

27

 

 

 

27

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and common stock equivalents (C)

 

7,445

 

 

7,461

 

 

 

7,457

 

 

 

7,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (A/B)

 

$

4.28

 

 

$

3.47

 

 

$

13.19

 

 

$

10.03

Diluted (A/C)

 

$

4.27

 

 

$

3.46

 

 

$

13.14

 

 

$

9.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

NOTE 3 — OTHER INCOME (EXPENSE), NET

The components of other income (expense), net were as follows:

 

(In millions)

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2026

 

 

2025

 

 

 

2026

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividends income

 

$

730

 

 

$

597

 

 

$

2,546

 

 

$

1,878

Interest expense

 

(778

)

 

(594

)

 

 

(2,212

)

 

 

(1,770

)

Net recognized gains (losses) on investments

 

1,652

 

 

111

 

 

 

1,419

 

 

 

(286

)

Net gains (losses) on derivatives

 

 

124

 

 

 

187

 

 

 

1,740

 

 

 

(267

)

Net gains (losses) on foreign currency remeasurements

 

 

(295

)

 

 

89

 

 

 

(367

)

 

 

112

 

Other, net

 

 

(491

)

 

 

(1,013

)

 

 

4,127

 

 

 

(2,861

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

942

 

 

$

(623

)

 

$

7,253

 

 

$

(3,194

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

PART I

Item 1

 

Other income (expense), net included $19 million of net losses and $5.9 billion of net gains for the three and nine months ended March 31, 2026, respectively, and $768 million and $2.7 billion of net losses for the three and nine months ended March 31, 2025, respectively, from investments in OpenAI, primarily net recognized gains (losses) on our equity method investment reflected in Other, net. The net gains recorded for the nine months ended March 31, 2026 primarily relate to the dilution gain from the OpenAI Recapitalization.

Net Recognized Gains (Losses) on Investments

Net recognized gains (losses) on debt investments were as follows:

 

(In millions)

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2026

 

 

2025

 

 

 

2026

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gains from sales of available-for-sale securities

 

$

54

 

 

$

8

 

 

$

89

 

 

$

25

Realized losses from sales of available-for-sale securities

 

(18

)

 

(17

)

 

 

(37

)

 

 

(51

)

Impairments and allowance for credit losses

 

(6

)

 

3

 

 

 

(23

)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

30

 

 

$

(6

)

 

$

29

 

 

$

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net recognized gains (losses) on equity investments were as follows:

 

(In millions)

Three Months Ended

March 31,

 

 

 

Nine Months Ended

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2026

 

 

2025

 

 

 

2026

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments sold

 

$

32

 

 

$

9

 

 

$

106

 

 

$

66

Net unrealized gains on investments still held

 

SourceSEC EDGAR
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