Microsoft has just released its financial results for the second quarter of the 2026 fiscal year. The tech giant reported $81.3 billion in revenue and a net income of $30.9 billion for Q3. This marks a 17 percent increase in revenue and a 23 percent rise in net income.
During the holiday quarter, PC shipments saw an unexpected uptick despite ongoing RAM shortages. The end of support for Windows 10 helped drive up these shipments, while IDC noted that PC manufacturers have been proactively pulling inventory forward to fend off potential tariffs and address the global memory shortages.
For the holiday season, Microsoft’s Windows OEM and devices revenue grew a modest 1 percent year-over-year. Both businesses and consumers seem to be upgrading their PCs and laptops as Windows 10 reaches its end of life; notably, Windows OEM revenue alone rose by 5 percent. However, this growth was offset by a dip in devices revenue, as Microsoft now combines Surface revenue with Windows OEM revenue.
No new Surface devices were announced in the recent quarter following the launch of the 12-inch Surface Pro and 13-inch Surface Laptop in May last year. We can expect more news on Surface devices come spring.
In contrast, Microsoft’s Xbox hardware revenue has been on a downward trend for three consecutive financial years, and this decline is likely to persist through fiscal 2026. Xbox hardware revenue dropped 32 percent year-over-year in the recent holiday quarter, with overall gaming revenue down 9 percent as well. Xbox content and services revenue, which includes Game Pass, also fell by 5 percent. This decline is mainly attributed to the stronger performance of first-party content in the previous year rather than the Game Pass Ultimate price increase.
Microsoft did not provide an update on Xbox Game Pass subscriber numbers, maintaining silence since reporting 34 million subscribers nearly two years ago, which included Xbox Game Pass Essential members.
Additionally, Microsoft has been publishing more games on PS5 as part of its strategy to bring previously Xbox-exclusive titles to both Nintendo and Sony platforms. The company announced last year that “Halo: Campaign Evolved” would be available on PS5 and Xbox in 2026, along with “Fable” and “Forza Horizon 6” hitting Sony’s console this year.
On a positive note, Microsoft’s cloud revenue remained robust this quarter, surpassing $50 billion overall, reflecting a 26 percent year-over-year growth. Revenue from Azure and other cloud services surged by 39 percent.
The Intelligent Cloud segment, which encompasses Azure and server products, generated $32.9 billion in revenue this quarter, significantly outpacing the $14.3 billion from the More Personal Computing segment that includes Windows, Xbox, and Surface. In fact, the More Personal Computing division saw a 3 percent decline in revenue year-over-year, making it the only business unit to experience such a decrease this quarter.
