Microsoft

“We expect capital expenditures to increase in coming years to support growth in our cloud offerings and our investments in AI infrastructure and training.”

“Capital expenditures, including finance leases, were $11.2 billion to support cloud demand, including investments to scale our AI infrastructure.”

“Capital expenditures were $41 billion, including the impact from higher component pricing as noted in our guide. Roughly two-thirds of our CapEx was for short-lived assets, primarily CPUs and GPUs, as customers increasingly build solutions that leverage both AI and non-AI infrastructure.”

“This quarter, total finance leases were $5.6 billion and were primarily for large data center sites, and cash paid for PP&E was $35.8 billion.”

“We added 31 new data centers across five continents this quarter, bringing the total to 88 this year as we expand our footprint in response to accelerating demand.”

“Before I move to outlook, effective at the start of FY 2027, we are extending the estimated useful life of our data centers and office buildings from 15- 25 years, reflecting our operating history and expected use of these assets. The impact of this update is reflected in today's guidance.”

“The greater impact is on capital expenditures, as more of our future data center leases will shift from finance leases to operating leases as a result of this update. Finance leases are included in capital expenditures, while operating leases are not. Outside of this useful life impact, our calendar year 2026 CapEx investment expectations remain unchanged. However, the shift from finance to operating leases adjusts our expectation to approximately $175 billion.”

“We expect CapEx spend will be over $50 billion, including the lease reclassification impact from the useful life update.”

“You've seen our CapEx really pivot toward what I would call and do call short-lived assets, which really, right, that's CPUs and GPUs that have relatively shorter lead times. If the demand environment changes, you just slow down what is, in fact, the largest component, right, and the driver of COGS.”

“There are still constraints in the system. I think we've continued to say, I think now for a number of quarters, that demand continues to exceed available supply, that certainly remains true. You can even see it, I think, in some of the pricing that's occurring in the spot market for assets.”

“We will continue to invest in capital expenditures to support growth in our cloud offerings and our investments in AI training and other infrastructure.”

“As of June 30, 2026, we had additional leases, primarily for datacenters, that had not yet commenced of $329.1 billion, with some arrangements subject to certain contractual conditions being met.”

“(d)Purchase commitments primarily relate to datacenters and include open purchase orders and take-or-pay contracts that are not presented as construction commitments above.”

“We may experience supply problems. There are limited suppliers for certain critical device and datacenter components, and those items are in short supply.”

“Given that we continue to see growing demand, no matter what model is chosen or what model family or whether it's run a model of your own, the Azure platform's quite efficient at delivering that. Think about that infrastructure as being pretty fungible.”

“We expect capital expenditures to increase in coming years to support growth in our cloud offerings and our investments in AI infrastructure and training.”

“Excluding the impact of the change in accounting estimate, Microsoft Cloud gross margin percentage increased slightly driven by improvements in Azure and Office 365 Commercial, inclusive of scaling our AI infrastructure, offset in part by sales mix shift to Azure.”

“During fiscal years 2026, 2025, and 2024, depreciation expense was $34.3 billion, $22.0 billion, and $15.2 billion, respectively.”

“We will continue to invest in capital expenditures to support growth in our cloud offerings and our investments in AI training and other infrastructure.”

“•Microsoft Cloud gross margin percentage decreased to 66% driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.”

“Before I move to outlook, effective at the start of FY 2027, we are extending the estimated useful life of our data centers and office buildings from 15- 25 years, reflecting our operating history and expected use of these assets. The impact of this update is reflected in today's guidance.”

“You've seen our CapEx really pivot toward what I would call and do call short-lived assets, which really, right, that's CPUs and GPUs that have relatively shorter lead times. If the demand environment changes, you just slow down what is, in fact, the largest component, right, and the driver of COGS.”

“Research and development expenses also include technology development costs, including AI training and other infrastructure costs, third-party development and programming costs, and the depreciation and amortization of assets used to conduct research and development.”

“We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment.”

“This quarter, total finance leases were $5.6 billion and were primarily for large data center sites, and cash paid for PP&E was $35.8 billion.”

“As of June 30, 2026, we had additional leases, primarily for datacenters, that had not yet commenced of $329.1 billion, with some arrangements subject to certain contractual conditions being met.”

“The greater impact is on capital expenditures, as more of our future data center leases will shift from finance leases to operating leases as a result of this update. Finance leases are included in capital expenditures, while operating leases are not. Outside of this useful life impact, our calendar year 2026 CapEx investment expectations remain unchanged. However, the shift from finance to operating leases adjusts our expectation to approximately $175 billion.”

“We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment.”

“Interest expense increased due to the issuance of commercial paper.”

“Interest expense increased primarily due to higher finance lease interest expense, offset in part by higher capitalization of debt interest expense.”

“Excluding any impact from our investments in OpenAI, other income and expense is expected to be roughly negative $100 million, as interest income will be more than offset by interest expense, which includes the interest payments related to data center finance leases.”

“Excluding the impact of the change in accounting estimate, Microsoft Cloud gross margin percentage increased slightly driven by improvements in Azure and Office 365 Commercial, inclusive of scaling our AI infrastructure, offset in part by sales mix shift to Azure.”

“Excluding the impact of the change in accounting estimate for use ful lives, Microsoft Cloud gross margin percentage increased roughly 2 points, driven by the improvement just mentioned in Azure, as well as Office 365, partially offset by the impact of scaling our AI infrastructure to meet growing demand.”

“•Cost of revenue increased $17.7 billion or 44% driven by investments in AI infrastructure to support growing customer demand.”

“•Gross margin increased $13.8 billion or 21% driven by growth in Azure. Gross margin percentage decreased driven by the continued investments in AI infrastructure as well as sales mix shift to Azure, offset in part by efficiency gains in Azure.”

“Segment gross margin dollars increased 24% and gross margin percentage decreased year-over-year, primarily driven by sales mix shift to Azure, as well as the continued scaling of our AI infrastructure ahead of growing demand, partially offset by ongoing efficiency gains in Azure. Segment gross margins were also impacted by growing GitHub Copilot usage, though margins improved through the quarter with the June business model change to usage-based pricing.”

“•Microsoft Cloud gross margin percentage decreased to 66% driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.”

“Company gross margin percentage was 67%, down year-over-year, driven by sales mix shift to Azure, as well as continued investments in AI infrastructure and growing product usage, partially offset by ongoing efficiency gains, particularly in Azure and M365 Commercial Cloud.”

“Microsoft Cloud gross margin percentage was better than expected at 65% and down year-over-year, driven by sales mix shift to Azure, as well as continued investments in AI infrastructure and increased product usage, partially offset by ongoing efficiency gains noted earlier.”

“Excluding the impact of the change in accounting estimate, Microsoft Cloud gross margin percentage increased slightly driven by improvements in Azure and Office 365 Commercial, inclusive of scaling our AI infrastructure, offset in part by sales mix shift to Azure.”

“Excluding the impact of the change in accounting estimate for use ful lives, Microsoft Cloud gross margin percentage increased roughly 2 points, driven by the improvement just mentioned in Azure, as well as Office 365, partially offset by the impact of scaling our AI infrastructure to meet growing demand.”

“•Cost of revenue increased $2.6 billion or 12% driven by investments in AI infrastructure to support Microsoft 365 Copilot seat and usage growth.”

“Segment gross margin dollars increased 14% and 13% in constant currency, and gross margin percentage decreased slightly with increased Microsoft 365 Copilot usage as we continue to invest in product quality and drive further efficiency gains.”

“•Microsoft Cloud gross margin percentage decreased to 66% driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.”

“More broadly, across our model implementations, we are seeing significant efficiency gains, including 89% reduction of GPU costs in Dynamics 365 with MAI-Voice-2-Flash and up to 84% reduced GPU costs in PowerPoint with MAI-Image-2.5.”

“We're also getting more from the infrastructure we already have by optimizing across silicon systems and software. For example, we increased the throughput for Copilot workloads 4x since the start of the year.”

“The work, frankly, on model diversification also is a margin improvement opportunity. Being able to serve the best possible outcome with a more efficient, or both efficient in terms of token usage and efficient in terms of cost structure, are also margin levers.”

“We are also accelerating our own model development. We announced more than a dozen new models across image, voice, transcription, coding, security, including our first reasoning model, MAI Thinking-1, all with cost-efficient inference at the core for the enterprise use cases.”

“These quality improvements, together with continued product innovation, are driving record usage intensity. The number of conversations per user nearly doubled year-over-year.”

“Research and development expenses increased $2.3 billion or 9% driven by Gaming, with 7 points of growth from the Activision Blizzard acquisition, and investments in cloud engineering.”

“Research and development expenses increased $3.1 billion or 9% driven by continued investments in compute capacity, AI talent, and data to support product development that benefits the entire portfolio, as well as impairment and other related expenses in our XBOX business.”

“Operating expenses increased 10%, driven by continued investment in R&D compute capacity, talent, and data to support product development across the portfolio. G&A growth was impacted by a low prior year comparable, as well as some of the discrete items mentioned earlier.”

“Research and development expenses also include technology development costs, including AI training and other infrastructure costs, third-party development and programming costs, and the depreciation and amortization of assets used to conduct research and development.”

“Operating margins increased slightly year-over-year to 45%. Total company headcount declined 2% year-over-year.”

“We are also accelerating our own model development. We announced more than a dozen new models across image, voice, transcription, coding, security, including our first reasoning model, MAI Thinking-1, all with cost-efficient inference at the core for the enterprise use cases.”

“Operating expenses increased $4.9 billion or 7% driven by continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio, impairment and other related expenses in our XBOX business, investments in commercial sales, and higher Copilot advertising expenses.”

“Advertising expense was $1.7 billion, $904 million, and $1.5 billion in fiscal years 2024, 2023, and 2022, respectively.”

“Sales and marketing expenses increased $1.1 billion or 4% driven by investments in commercial sales and higher Copilot advertising expenses.”

“Operating expenses increased $4.9 billion or 7% driven by continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio, impairment and other related expenses in our XBOX business, investments in commercial sales, and higher Copilot advertising expenses.”

“Advertising expense was $2.7 billion, $2.1 billion, and $1.7 billion in fiscal years 2026, 2025, and 2024, respectively.”

“We have a long-term partnership with OpenAI, a leading AI research and deployment company. We deploy OpenAI’s models across our consumer and enterprise products.”

“Enterprise and Partner Services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience, assist customers in developing, deploying, and managing Microsoft server solutions, Microsoft desktop solutions, and Nuance conversational AI and ambient intelligent solutions, along with providing training and certification to developers and IT professionals on various Microsoft products.”

“To help customers capture that opportunity this month, we launched Microsoft Frontier Company, the largest outcome-driven engineering organization in the industry. We will embed 6,000 industry and engineering experts with customers to co-design, co-innovate, and continuously improve AI systems at scale. We've been testing this model over the past year, completing over 330 projects across 164 customers, including many of the world's leading companies across industries.”

“For example, our FD teams worked with Novo Nordisk to build an agent that helps analyze clinical data while meeting its strict compliance requirements.”

“In Azure, as expected, the optimization trends were similar to Q4. Higher than expected AI consumption contributed to revenue growth in Azure.”

“Azure and other cloud services revenue grew 29% and 28% in constant currency, including roughly 3 points from AI services.”

“Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, Internet of Things (“IoT”), cognitive services, and machine learning.”

“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,”

“In fact, even in this early innings, we have built an AI business that is larger than some of our biggest franchises that took decades to build.”

“All up, our annual revenue surpassed $331 billion, up 18%. Microsoft Cloud surpassed $214 billion, up 27%, and Azure surpassed $100 billion, up 41%.”

“This fiscal year, we delivered over $331 billion in revenue, with growth accelerating to 18%, driven by strong demand across both the Azure platform and our first-party AI applications and services.”

“In Azure and other cloud services, revenue grew 43% against a prior year that included accelerating growth. Customer demand continues to exceed available capacity. Revenue growth was ahead of expectations, driven by efficiency gains across our CPU and GPU fleet, as well as process improvements to enable earlier delivery of new capacity.”

“That additional in-quarter capacity for Azure was quickly monetized. Results also benefited from stronger than expected GitHub Copilot consumption following the June business model change to align pricing with usage and value.”

“The remaining portion, recognized beyond the next 12 months, increased 112%. Microsoft Cloud revenue was $59.3 billion and grew 27%, reflecting strong demand across Azure and our first-party AI applications and services.”

“Given that we continue to see growing demand, no matter what model is chosen or what model family or whether it's run a model of your own, the Azure platform's quite efficient at delivering that. Think about that infrastructure as being pretty fungible.”

“When it comes to knowledge work, we now have over 30 million paid Microsoft 365 Copilot seats with net seat adds more than doubling quarter-over-quarter.”

“There are still constraints in the system. I think we've continued to say, I think now for a number of quarters, that demand continues to exceed available supply, that certainly remains true. You can even see it, I think, in some of the pricing that's occurring in the spot market for assets.”

“This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation.”

“We're excited for Microsoft 365 Copilot general availability on November first and expect the related revenue to grow gradually over time.”

“I mean, at the end of the day, we are grounded on enterprise cycle times in terms of adoption and ramp, and it's incrementally priced, so therefore that all will apply still.”

“When it comes to knowledge work, we now have over 30 million paid Microsoft 365 Copilot seats with net seat adds more than doubling quarter-over-quarter.”

“Building on our Copilot momentum from Q3, net paid seat adds more than doubled sequentially, with paid seats now over 30 million. Premium offerings, including Copilot, E5, and early traction in E7, drove ARPU growth this quarter.”

“We have been encouraged by the response to our new E7 suite as customers increasingly go all in on an integrated AI offering that brings together Copilot E5, Entra, and Agent 365. Just two months after launch, hundreds of enterprise customers have already purchased millions of seats, this quarter, EY deployed E7 to 400,000 employees in our largest win to date.”

“•Microsoft 365 Commercial products and cloud services revenue increased $14.2 billion or 16%. Microsoft 365 Commercial cloud revenue grew 17% with growth in revenue per user driven by Microsoft 365 Copilot and Microsoft 365 E5.”

“With the premium SKU momentum and the increased monetization opportunity from adding usage-based billing products alongside per-seat licensing in July, we expect to see acceleration in M365 commercial cloud revenue growth through this fiscal year.”

“•Cost of revenue increased $2.6 billion or 12% driven by investments in AI infrastructure to support Microsoft 365 Copilot seat and usage growth.”

“Segment gross margin dollars increased 14% and 13% in constant currency, and gross margin percentage decreased slightly with increased Microsoft 365 Copilot usage as we continue to invest in product quality and drive further efficiency gains.”

“In addition to this, we are also evolving our business model beyond per seat to per seat plus consumption, further expanding our TAM and delivering more customer value. Earlier this month, we added usage-based billing to Copilot Cowork with thousands of customers already paying for and actively using it.”

“This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation.”

“These quality improvements, together with continued product innovation, are driving record usage intensity. The number of conversations per user nearly doubled year-over-year.”

“We are already seeing the ARPU growth that comes from things like Microsoft 365 E7.”

“We have over 1 million paid Copilot users and more than 37,000 organizations have subscribed to Copilot for Business, up 40% quarter-over-quarter, with significant traction outside the United States.”

“When it comes to developers, GitHub Copilot now has 50 million users. This quarter, we introduced usage-based billing and have continued to see business and enterprise seat growth and also significant consumption revenue after the new model went into effect. Copilot revenue accelerated over 60% quarter-over-quarter.”

“That additional in-quarter capacity for Azure was quickly monetized. Results also benefited from stronger than expected GitHub Copilot consumption following the June business model change to align pricing with usage and value.”

“Segment gross margin dollars increased 24% and gross margin percentage decreased year-over-year, primarily driven by sales mix shift to Azure, as well as the continued scaling of our AI infrastructure ahead of growing demand, partially offset by ongoing efficiency gains in Azure. Segment gross margins were also impacted by growing GitHub Copilot usage, though margins improved through the quarter with the June business model change to usage-based pricing.”

“In Azure, as expected, the optimization trends were similar to Q4. Higher than expected AI consumption contributed to revenue growth in Azure.”

“Azure and other cloud services revenue grew 29% and 28% in constant currency, including roughly 3 points from AI services.”

“Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, Internet of Things (“IoT”), cognitive services, and machine learning.”

“It gives agents access to the IQ layer, the tools they use, along with durable state and memory, secure sandboxes, rubrics and evals, and even their own self-improvement loops. We now have 100,000 Foundry customers and revenue more than doubled year- over- year.”

“All up, the number of Foundry customers at 1 trillion tokens annualized run rate increased 4x year- over- year.”

“We offer the broadest model catalog in the cloud with over 11,000 models, including the latest from OpenAI, Anthropic, Mistral, xAI, as well as our own MAI family. Since the start of the year, we have seen 5x increase in the number of customers building with models from multiple providers.”

“Given that we continue to see growing demand, no matter what model is chosen or what model family or whether it's run a model of your own, the Azure platform's quite efficient at delivering that. Think about that infrastructure as being pretty fungible.”

“When it comes to analytics, we now have over 40,000 paid Fabric customers, up more than 60% year-over-year, and over 17,000 customers now use Foundry and Fabric, up 60% year-over-year as enterprises connect agents to real-time operational, analytical, and unstructured data in Fabric.”

“In Azure and other cloud services, revenue grew 43% against a prior year that included accelerating growth. Customer demand continues to exceed available capacity. Revenue growth was ahead of expectations, driven by efficiency gains across our CPU and GPU fleet, as well as process improvements to enable earlier delivery of new capacity.”

“Azure and other cloud services revenue grew 29% and 28% in constant currency, including roughly 3 points from AI services.”

“As OpenAI’s exclusive cloud provider, Azure powers all of OpenAI's workloads.”

“We have a long-term partnership with OpenAI, a leading AI research and deployment company. We deploy OpenAI’s models across our consumer and enterprise products.”

“For the full year, our cloud revenue surpassed $214 billion, with nearly 90% from customers outside of Frontier Model companies.”

“Commercial remaining performance obligation grew 84% to $678 billion. All sequential commercial RPO growth was driven by commitments from customers outside of Frontier Model companies, and RPO increased 25% when excluding OpenAI.”

“Now to our commercial results. Commercial bookings grew 18% when excluding the impact from OpenAI, driven by strong execution in our core annuity sales motions and reflecting broad customer demand across geographies and customer segments. Bookings increased 10% and 11% in constant currency when including Azure commitments from OpenAI.”

“As an equity method investee, OpenAI is a related party as defined in Accounting Standards Codification Topic 850, Related Party Disclosures (“ASC 850”). In accordance with ASC 850, we are disclosing revenue and accounts receivable balances from transactions with OpenAI. For fiscal year 2026, we recorded revenue from commercial arrangements with OpenAI, inclusive of revenue-sharing payments, of $24.1 billion, and accounts receivable from OpenAI as of June 30, 2026 was $6.0 billion.”

“As a reminder, the significant OpenAI contract signed in the prior year will result in some quarterly volatility in both bookings and RPO growth rates.”

“When it comes to running agents, CPUs are just as important as GPUs. Our Cobalt VMs are powering both our own first-party workloads as well as workloads for customers, including Adobe, Arm, Elastic, OpenAI, Sprinklr, and TomTom.”

“The remaining portion, recognized beyond the next 12 months, increased 112%. Microsoft Cloud revenue was $59.3 billion and grew 27%, reflecting strong demand across Azure and our first-party AI applications and services.”

“Copilot Studio allows customers to customize Copilot for Microsoft 365 or build their own Copilot. Microsoft Power Platform helps domain experts drive productivity gains with low-code/no-code tools, robotic process automation, virtual agents, and business intelligence.”

“We are also moving from seats to seats plus consumption model. Customer service is at the forefront of this transformation with usage-based credit consumption in this category up 4x quarter-over-quarter with customers like Northern Trust using our tools to drive proactive intelligence.”

“In addition to this, we are also evolving our business model beyond per seat to per seat plus consumption, further expanding our TAM and delivering more customer value. Earlier this month, we added usage-based billing to Copilot Cowork with thousands of customers already paying for and actively using it.”

“Bookings growth at ERP remains healthy, while CRM continued to moderate with longer sales cycles.”

“With the premium SKU momentum and the increased monetization opportunity from adding usage-based billing products alongside per-seat licensing in July, we expect to see acceleration in M365 commercial cloud revenue growth through this fiscal year.”

“More broadly, across our model implementations, we are seeing significant efficiency gains, including 89% reduction of GPU costs in Dynamics 365 with MAI-Voice-2-Flash and up to 84% reduced GPU costs in PowerPoint with MAI-Image-2.5.”

“In addition to LinkedIn’s free services, LinkedIn offers monetized solutions designed to offer AI-enabled insights and productivity: Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions. Talent Solutions provide insights for workforce planning and tools to hire, nurture, and develop talent.”

“Since introducing AI-assisted messages for recruiters five months ago, 3/4 of them say it saves them time, and we have seen a nearly 80% increase in members watching AI-related learning courses this quarter.”

“Recruiters at over 20,000 companies are now using our AI-powered solutions to reduce time to hire and improve candidate matching. Seats increased to 140% quarter-over-quarter.”

“LinkedIn revenue increased 12% and 10% in constant currency, primarily driven by marketing solutions.”

“With Copilot for Security, Microsoft offers an AI cybersecurity product that enables security professionals to respond to cyberthreats quickly.”

“To make it easier for security teams to onboard, we are rolling out Security Copilot to all our E5 customers, and our security solutions are also becoming essential to manage organizations' AI deployments.”

“Earlier this week, we introduced Project Perception, a complete multimodal agentic security system that brings together teams of agents to simulate attacks, investigate threats, and drive remediation. As Perception moves beyond private preview, we expect to bring it to customers through a consumption-based offering.”

“The reason is because 90% of the tasks are done by the MAI-Cyber-1-Flash model, and 10% of the tasks, you still go to the frontier, right?”

“Finally, with Agent 365, we offer a control plane that extends companies' existing governance, identity, security, and management frameworks to agents they build. Just two months in, Agent 365 now has nearly 40 million agents registered across tens of thousands of companies.”

“We'll see a little bit more from Microsoft 365 E7 really has a lot of interesting value in the Microsoft Agent 365 component in particular, where Satya Nadella's talking about having SecOps and FinOps, think about in general, everyone is going to need both observability of token spend and the manageability of token spend for all business processes, and that is what Microsoft 365 E7 brings.”

“We have been encouraged by the response to our new E7 suite as customers increasingly go all in on an integrated AI offering that brings together Copilot E5, Entra, and Agent 365. Just two months after launch, hundreds of enterprise customers have already purchased millions of seats, this quarter, EY deployed E7 to 400,000 employees in our largest win to date.”

“Building on our Copilot momentum from Q3, net paid seat adds more than doubled sequentially, with paid seats now over 30 million. Premium offerings, including Copilot, E5, and early traction in E7, drove ARPU growth this quarter.”

“We are already seeing the ARPU growth that comes from things like Microsoft 365 E7.”

“Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, Internet of Things (“IoT”), cognitive services, and machine learning.”

“And as you know, AI projects are not just about AI meters, they have lots of other cloud meters as well.”

“And primarily, we're expecting those to come from AI workloads, but AI workloads don't just use our AI services. They use data services, and they use other things.”

“Customers are rapidly adopting our AI-optimized databases like Cosmos DB and PostgreSQL to give agents fast, secure access to real-time data and context they need for memory and retrieval. PostgreSQL revenue was up 55%, accelerating for the third consecutive quarter. Also, the number of PostgreSQL customers also using Foundry increased 80% as customers increasingly choose it as the database for AI workloads.”

“When it comes to analytics, we now have over 40,000 paid Fabric customers, up more than 60% year-over-year, and over 17,000 customers now use Foundry and Fabric, up 60% year-over-year as enterprises connect agents to real-time operational, analytical, and unstructured data in Fabric.”

“When it comes to running agents, CPUs are just as important as GPUs. Our Cobalt VMs are powering both our own first-party workloads as well as workloads for customers, including Adobe, Arm, Elastic, OpenAI, Sprinklr, and TomTom.”

“The agentic era is being built on GitHub. Every major coding agent runs on the platform, and one in three pull requests on GitHub now involves an agent.”

“In Azure and other cloud services, revenue grew 43% against a prior year that included accelerating growth. Customer demand continues to exceed available capacity. Revenue growth was ahead of expectations, driven by efficiency gains across our CPU and GPU fleet, as well as process improvements to enable earlier delivery of new capacity.”

“As OpenAI’s exclusive cloud provider, Azure powers all of OpenAI's workloads.”

“We have a long-term partnership with OpenAI, a leading AI research and deployment company. We deploy OpenAI’s models across our consumer and enterprise products.”

“Other, net primarily reflects net recognized losses on equity method investments.”

“Other income (expense), net included $6.5 billion of net gains and $4.8 billion of net losses for fiscal years 2026 and 2025, respectively, from investments in OpenAI, primarily net recognized gains (losses) on our equity method investment reflected in Other, net.”

“During fiscal year 2026, our proportionate ownership of OpenAI decreased due to the OpenAI Recapitalization and other funding activity, and we recorded dilution gains in other income (expense), net.”

“We have an investment accounted for under the equity method that represents an approximate 25% interest on an as-converted basis.”

“In fiscal year 2026, net income and diluted earnings per share were impacted by net gains from investments in OpenAI, which resulted in an increase in net income and diluted earnings per share of $480 million and $0.07, respectively, in the fourth quarter, and $4,963 million and $0.67, respectively, for the full fiscal year.”

“As an equity method investee, OpenAI is a related party as defined in Accounting Standards Codification Topic 850, Related Party Disclosures (“ASC 850”). In accordance with ASC 850, we are disclosing revenue and accounts receivable balances from transactions with OpenAI. For fiscal year 2026, we recorded revenue from commercial arrangements with OpenAI, inclusive of revenue-sharing payments, of $24.1 billion, and accounts receivable from OpenAI as of June 30, 2026 was $6.0 billion.”

“In healthcare, our Dragon Ambient eXperience solution helps clinicians automatically document patient interactions at the point of care. It's been used across more than 10 million interactions to date. With DAX Copilot, we are applying generative AI models to draft high-quality clinical notes in seconds, increasing physician productivity and reducing burnout.”

“In healthcare, we are on pace to automate over 100 million patient encounters this calendar year, including 28 million this quarter, up 2x year-over-year. Mass General Brigham rolled out DAX Copilot to over 4,000 providers and after a study found Ambient AI reduced burnout by 21%.”

“We're also expanding to new endpoints, bringing Bing to Meta's AI chat experience in order to provide more up-to-date answers, as well as access to real-time search information.”

“This quarter, we introduced Web IQ, which gives agents access to real-world intelligence from across the web. It is already being used by the most popular AI assistants, including ChatGPT.”

“Several discrete items impacted our financial results in the quarter when compared to our forward-looking guidance provided on April 29, 2026, resulting in a benefit of $0.27 on diluted earnings per share. These include a $3.2 billion gain from our investment in Anthropic and lower-than-expected expenses related to the Voluntary Retirement Program which were partially offset by severance expense and impairment charges in XBOX.”

“When adjusted for the impact of our investments in OpenAI, other income and expense was $2.8 billion, driven by the gain on investment in Anthropic noted earlier.”