Each quarter, Microsoft’s earnings call offers more than just financial results. It provides insight into where Microsoft is investing, which products are gaining traction, and how priorities are shifting across cloud, AI, and enterprise software. The FY2026 Q2 earnings call is particularly relevant, as it highlights accelerating AI adoption, sustained cloud demand, and the infrastructure investments that will directly shape pricing, capacity, and licensing decisions for customers in the year ahead.

1. Revenue growth — what grew (and what didn’t)

Segment revenue

Three months ended December 31, 2025 vs. December 31, 2024

Key growth rates

Investor Metrics (constant currency where provided)

• Microsoft Cloud revenue growth: +26% y/y (CC).
• Azure & other cloud services revenue growth: +39% y/y (CC).
• Microsoft 365 Commercial cloud revenue growth: +17% y/y (CC).
• Dynamics 365 revenue growth: +19% y/y (CC).
• LinkedIn revenue growth: +11% y/y (CC).
• Windows OEM & Devices revenue growth: +1% y/y (GAAP; ~0% CC).
• Xbox content & services revenue growth: -5% y/y (CC).
• Search & news advertising (ex‑TAC) growth: +10% y/y (CC).

Margin / investment signals:

• Microsoft Cloud gross margin: Microsoft Cloud gross margin (67%) declined year over year, primarily due to continued investment in AI infrastructure. Higher costs related to data centers, specialized AI hardware, and energy usage are weighing on margins, alongside increasing consumption of AI-enabled products. Microsoft reiterated that this margin pressure reflects intentional, demand-driven investment rather than underlying weakness.
• Capital expenditures: Capital expenditures ($37.5B in the quarter) remain elevated as Microsoft accelerates capacity expansion, particularly for Azure and AI workloads. Management emphasized that customer demand continues to exceed available Azure capacity, reinforcing that the current investment cycle is driven by strong usage growth and long-term demand visibility.

2. Outlook for the coming quarter (FY26 Q3)

• Revenue: $80.65B–$81.75B (management guidance), implying ~15%–17% growth; FX expected to add ~3 points to revenue growth.
• Cost of revenue: $26.65B–$26.85B; operating expenses: $17.8B–$17.9B (continued AI compute + R&D investment).
• Microsoft Cloud gross margin expected ~65% (down y/y) due to AI investments.
• Azure & other cloud services growth expected 37%–38% (constant currency).
• Operating margin expected to be down slightly y/y in Q3 (investment cycle).
• Capex expected to decrease sequentially, but short‑lived asset mix (GPUs/CPUs) to remain similar to Q2.

3. Product and AI adoption signals

These product and AI adoption signals were called out during the annual Microsoft Earnings Call.

Microsoft 365 Copilot

Microsoft 365 Copilot continued to scale rapidly, reaching 15 million paid seats, with seat counts up 160% year over year and the number of customers deploying more than 35,000 seats having tripled.

GitHub Copilot

GitHub Copilot grew to 4.7 million paid subscribers, representing 75% year-over-year growth, while Copilot Pro Plus subscriptions increased a further 77% sequentially.

Microsoft Fabric

Microsoft Fabric surpassed a $2 billion annualized revenue run rate, now serving more than 31,000 customers, with revenue growing 60% year over year.

Foundry

Foundry showed strong enterprise adoption, with the number of customers spending more than $1 million per quarter increasing by nearly 80%, as highlighted during the earnings call.

Windows 11

Windows 11 exceeded 1 billion users, marking more than 45% year-over-year growth according to management commentary.

Commercial RPO

Commercial remaining performance obligations (RPO) reached $625 billion, with management indicating that approximately 45% is attributable to OpenAI-related contracts, while cautioning that this mix may introduce quarter-to-quarter volatility.

Capacity Constraints

Management reiterated ongoing capacity constraints, noting that customer demand for Azure continues to outpace available supply as Microsoft balances infrastructure allocation between Azure customers, first-party AI products, and internal R&D requirements.

Practical Takeaways

What this means for Microsoft customers

1. Expect continued AI-driven innovation, but also continued pricing and margin pressure in cloud services as Microsoft invests heavily in AI infrastructure (cloud gross margin down, guided lower). Meaning: Your upcoming contract renewal or the additions to your current contract are likely going to cost you more.
2. Capacity planning matters: Azure demand exceeding supply implies some regions/services may remain capacity‑constrained. Large customers should plan earlier for GPU/AI workloads and commit capacity through agreements where possible. Make this known to Microsoft if you’re already in the planning stage so they can provide the correct guidance.
3. Copilot momentum is real: Rapid growth in Microsoft 365 Copilot and GitHub Copilot suggests accelerating enterprise standardization. Customers should revisit their security and governance, information protection, and cost management (seat assignment, usage analytics, and licensing optimization). However, customers already buying these technologies should be cautious that they are actually adopting this as well. We’re currently seeing companies with M365 Copilot that are heavily under using the license and as such throwing money away.
4. Data/analytics consolidation trend: Fabric’s scale (customers and run-rate) indicates Microsoft is pushing a unified data platform. Customers considering Fabric should evaluate overlap with existing analytics stacks and plan migration/CoE readiness. The reason for this is simple: Microsoft wants you to adopt Fabric in all its glory, have you standardize your data on the Microsoft platform, to then push their AI narrative.
5. Contracting/backlog (RPO) surge highlights multi‑year dealmaking: Enterprises may see more emphasis on longer-term commitments, bundled offers and cloud consumption commitments. Use this to your advantage and negotiate better commercial terms (discounts, commit flexibility, and true-up/true-down mechanics).
6. Hybrid remains important: Strong on‑prem server growth (hybrid solutions, SQL Server launch) suggests Microsoft will keep investing in hybrid scenarios. This is useful for regulated industries and phased migrations.