Microsoft’s September quarter included a surprising detail !
A $4.1 billion loss tied to its investment in OpenAI
That suggests OpenAI’s own losses are far deeper than expected around $15 billion in the most recent quarter.
The timing is notable. Microsoft and OpenAI just reworked their partnership, converting OpenAI into a for profit public benefit corporation (PBC). Under the new structure, Microsoft owns 27% of the company and has secured long-term access to its models. OpenAI, in turn, can now expand on other cloud providers, though it has committed to spending $250 billion on Azure.
For context, OpenAI is expected to bring in about $13 billion in revenue across all of 2025.
If the AI boom shows any cracks, this could be the place to watch. OpenAI’s heavy spending on infrastructure may eventually outpace its funding capacity, creating ripple effects for investors and suppliers. There’s plenty of money flowing for now, but at some point, the costs will catch up.
Here’s what stood out this quarter.
Today at a glance:
Microsoft’s Q1 FY26 results
The new OpenAI agreement
Key takeaways from the earnings call
What’s driving performance
1. Microsoft’s Q1 FY26
Income Statement:
Revenue up 18% year over year to $77.7 billion ($2.3 billion above estimates)
Gross margin steady at 69%
Operating margin 49%, up two points
EPS $4.13, beating by $0.47
Product and Service Highlights:
☁️ Server products and cloud services: $28.9 billion (+30%)
📊 M365 Commercial products and cloud services: $24.0 billion (+17%)
🎮 Gaming: $5.5 billion (-2%)
👔 LinkedIn: $4.7 billion (+10%)
🪟 Windows and Devices: $4.6 billion (+5%)
🔎 Search and news advertising: $3.7 billion (+15%)
💻 Other: $6.4 billion (+15%)
Core Segments: Microsoft reorganized its business lines last year to better reflect how it now operates.
Productivity and Business Processes: up 17% to $33.0 billion ($0.7 billion above forecasts), led by strong M365 growth and higher revenue per user from Copilot adoption.
Intelligent Cloud: up 28% to $30.9 billion ($0.7 billion beat), driven by Azure strength across workloads.
More Personal Computing: up 4% to $13.8 billion ($0.9 billion beat), helped by search ads and offsetting weaker Xbox hardware.
Microsoft Cloud revenue rose 25% to $49.1 billion and now makes up 63% of total sales. Growth was broad, powered by Azure and M365. Copilot use is growing fast, though its full revenue impact is still ahead.
Azure remains the main growth engine, showing no slowdown this quarter.
Consumer M365 saw another acceleration, lifted by a price hike and a 7% increase in subscribers.
Xbox revenue leveled off after completing the Activision deal; Game Pass growth couldn’t offset weaker hardware sales.
Advertising grew 15%, matching Google Search’s pace from a much smaller base.
Cash Flow
Operating cash flow up 32% to $45.1 billion
Free cash flow up 33% to $25.7 billion
Balance Sheet
Cash and investments: $102 billion
Long-term debt: $35 billion
What It All Means ?! Azure demand still outpaces supply. Growth will fluctuate quarter to quarter. Both AWS and Google Cloud also picked up speed this period.
Capital spending surged. CapEx reached $34.9 billion (+74%), split between chips and data-center construction. Microsoft plans to double its data-center footprint within two years, front-loading investment to relieve Azure capacity limits.
Infrastructure challenges persist. Power and space remain constraints. Management expects Azure to grow 37% next quarter but warned that supply bottlenecks will continue.
Visibility improving. Commercial remaining performance obligations (RPO) rose 51% to $392 billion, mostly tied to long-term AI and infrastructure deals.
OpenAI weighed on results. “Other expenses” included a $4.1 billion loss from Microsoft’s stake in OpenAI, offset by positive interest income elsewhere.
Capital returns remain strong. Despite heavy spending, Microsoft returned $10.7 billion to shareholders through dividends and buybacks, unlike Amazon, which still doesn’t repurchase stock or pay dividends.
2. The New OpenAI Agreement
🤝 Microsoft + OpenAI Rewrite the Rules
The new deal changes how the two companies work together—and where they compete. Microsoft keeps its advantage in Azure scale for years to come, but OpenAI now has more flexibility to partner elsewhere and pursue AGI on its own path.
What Microsoft Gets:
A 27% stake in the new OpenAI public benefit corporation, valued around $135 billion.
Commercial rights to OpenAI models through 2032, including anything that comes after an AGI breakthrough.
A $250 billion commitment from OpenAI for Azure spending.
No more exclusive hosting OpenAI can now use other cloud providers.
If OpenAI claims to reach AGI, an independent panel must verify it.
Once AGI is confirmed (or by 2030, whichever comes first), revenue sharing ends and Microsoft’s research access narrows.
Microsoft can still work on AGI independently, but its compute use is limited if it’s built on OpenAI tech.
Why It Matters MoonMaster ?
These terms remove some valuation uncertainty for Microsoft, letting investors more clearly account for its OpenAI stake. The Azure commitment also helps justify record AI infrastructure spending with solid visibility into future demand. But OpenAI’s new freedom to fundraise and expand across multiple clouds and to build out new revenue streams like advertising puts more pressure on AWS and raises fresh competitive questions for Google.
🎮 Game Pass Under Pressure
Microsoft just raised prices and revamped Game Pass, and fans noticed! (here we go again)
What Changed ?! The Ultimate tier jumped 50% to $29.99 per month. Microsoft says the higher price comes with more content 400+ games, 75+ day-one titles, Ubisoft+ Classics, and 1440p cloud streaming but the increase is steep.
Dont miss KEEPER and Ninja Gaiden 4 on gamepass by the way!
PC Game Pass also rose from $11.99 to roughly $16.49 per month. The Call of Duty add-on discount quietly disappeared, and rollout timing varied by region.
Why Now ? Reports suggest Call of Duty: Black Ops 6 on day-one Game Pass last year boosted subscribers but cost as much as $300 million in lost full-price sales. The new pricing is meant to rebalance that trade-off.
Competitive Context:
Sony has nudged PlayStation Plus prices upward, but it doesn’t offer day one releases. That keeps full-price game sales healthier on PlayStation.
Microsoft’s Strategy:
CEO Satya Nadella described Xbox as a platform that spans devices—TVs, PCs, handhelds, and cloud apps so the console is “an endpoint, not the endpoint.” The goal is to make Xbox services available anywhere, even on rival platforms.
What It Means for Game Pass:
More devices mean a bigger audience, but less leverage from console exclusives. Growth will have to come from higher average revenue per user (through tiering, add-ons, and premium pricing) and from monetizing major IP titles at full price when it makes sense.
Bottom Line:
Game Pass is shifting from a growth-at-any-cost model to a premium subscription bundle built around strong content. The “everything is Xbox” approach broadens reach but reduces the old lock-in advantage. The key will be whether higher ARPU and pricing discipline can offset churn from price hikes. If not, Sony could keep its lead while regulators keep a close eye on consolidation.
3. Earnings Call Takeaways
On AI Scale and Capacity: “We will increase our total AI capacity by over 80% this year and roughly double our total data center footprint over the next two years. Fairwater (WI) alone will scale to 2 GW.”
Azure’s supply limits are real. Microsoft is front-loading construction to catch up with demand.
On Demand Signals: “Microsoft Cloud revenue hit $49 billion, up 26%. Commercial RPO climbed 50% to nearly $400 billion, with an average contract duration of about two years.”
That $368 billion backlog gives Microsoft strong revenue visibility and supports its aggressive AI spending.
On CapEx and Cash Flow: “We now expect FY26 CapEx growth to be higher than FY25.”
The spending peak isn’t here yet. Management wants to secure market share while demand stays strong.
On Copilot and Agent Adoption:
“We now have 900 million monthly active users of AI features. First-party Copilots topped 150 million MAU. Copilot chat adoption rose 50% quarter over quarter. Agent users doubled. PwC added 155,000 seats this quarter, with over 200,000 now deployed and 30 million interactions in six months.”
The shift from AI “features” to autonomous agents is accelerating. Usage is deepening, suggesting pricing power and future revenue growth.
On AI Bubble Concerns and Concentration Risk:
“We’ve been short on capacity for many quarters. Demand continues to rise. We avoid overly concentrated deals and are building a flexible fleet for both first- and third-party use”
In short, Microsoft’s expansion isn’t reckless. Its contracts match the lifespan of its infrastructure, keeping the risk of overbuilding low.
4. What Moves the Needle
🔌 Azure Demand: OpenAI’s $250 billion Azure commitment gives Microsoft strong visibility into future AI workloads, but execution risk remains high. Watch cloud market share trends.
☁️ Multi-Cloud Dynamics: OpenAI can now work with AWS (likely the main beneficiary). Oracle’s outlook improves with funding clarity. Google could face pressure if OpenAI pushes into ads and browser-based agents.
💸 CapEx Supercycle: Microsoft expects AI infrastructure spending to top $110 billion in FY26. Profitability depends on keeping data centers highly utilized as competition ramps up.
🧠 Copilot Monetization: The potential is still huge, but Microsoft must convert free or bundled users into paid seats. Sales teams are focused on packaging and attach-rate growth.
🎮 Gaming Mix: New Game Pass tiers and Activision titles will test whether Microsoft can lift ARPU and engagement while console sales normalize.
⚖️ Regulatory Headwinds: The EU already forced Microsoft to unbundle Teams, and regulators in the UK and EU continue to scrutinize AI and cloud partnerships. Pricing and bundling rules could shift again.
Let’s see how far Microsoft can drive it before the tank runs dry..
A $4.1 billion loss tied to its investment in OpenAI
That suggests OpenAI’s own losses are far deeper than expected around $15 billion in the most recent quarter.
The timing is notable. Microsoft and OpenAI just reworked their partnership, converting OpenAI into a for profit public benefit corporation (PBC). Under the new structure, Microsoft owns 27% of the company and has secured long-term access to its models. OpenAI, in turn, can now expand on other cloud providers, though it has committed to spending $250 billion on Azure.
For context, OpenAI is expected to bring in about $13 billion in revenue across all of 2025.
If the AI boom shows any cracks, this could be the place to watch. OpenAI’s heavy spending on infrastructure may eventually outpace its funding capacity, creating ripple effects for investors and suppliers. There’s plenty of money flowing for now, but at some point, the costs will catch up.
Here’s what stood out this quarter.
Today at a glance:
Microsoft’s Q1 FY26 results
The new OpenAI agreement
Key takeaways from the earnings call
What’s driving performance
1. Microsoft’s Q1 FY26
Income Statement:
Revenue up 18% year over year to $77.7 billion ($2.3 billion above estimates)
Gross margin steady at 69%
Operating margin 49%, up two points
EPS $4.13, beating by $0.47
Product and Service Highlights:
☁️ Server products and cloud services: $28.9 billion (+30%)
📊 M365 Commercial products and cloud services: $24.0 billion (+17%)
🎮 Gaming: $5.5 billion (-2%)
👔 LinkedIn: $4.7 billion (+10%)
🪟 Windows and Devices: $4.6 billion (+5%)
🔎 Search and news advertising: $3.7 billion (+15%)
💻 Other: $6.4 billion (+15%)
Core Segments: Microsoft reorganized its business lines last year to better reflect how it now operates.
Productivity and Business Processes: up 17% to $33.0 billion ($0.7 billion above forecasts), led by strong M365 growth and higher revenue per user from Copilot adoption.
Intelligent Cloud: up 28% to $30.9 billion ($0.7 billion beat), driven by Azure strength across workloads.
More Personal Computing: up 4% to $13.8 billion ($0.9 billion beat), helped by search ads and offsetting weaker Xbox hardware.
Microsoft Cloud revenue rose 25% to $49.1 billion and now makes up 63% of total sales. Growth was broad, powered by Azure and M365. Copilot use is growing fast, though its full revenue impact is still ahead.
Azure remains the main growth engine, showing no slowdown this quarter.
Consumer M365 saw another acceleration, lifted by a price hike and a 7% increase in subscribers.
Xbox revenue leveled off after completing the Activision deal; Game Pass growth couldn’t offset weaker hardware sales.
Advertising grew 15%, matching Google Search’s pace from a much smaller base.
Cash Flow
Operating cash flow up 32% to $45.1 billion
Free cash flow up 33% to $25.7 billion
Balance Sheet
Cash and investments: $102 billion
Long-term debt: $35 billion
What It All Means ?! Azure demand still outpaces supply. Growth will fluctuate quarter to quarter. Both AWS and Google Cloud also picked up speed this period.
Capital spending surged. CapEx reached $34.9 billion (+74%), split between chips and data-center construction. Microsoft plans to double its data-center footprint within two years, front-loading investment to relieve Azure capacity limits.
Infrastructure challenges persist. Power and space remain constraints. Management expects Azure to grow 37% next quarter but warned that supply bottlenecks will continue.
Visibility improving. Commercial remaining performance obligations (RPO) rose 51% to $392 billion, mostly tied to long-term AI and infrastructure deals.
OpenAI weighed on results. “Other expenses” included a $4.1 billion loss from Microsoft’s stake in OpenAI, offset by positive interest income elsewhere.
Capital returns remain strong. Despite heavy spending, Microsoft returned $10.7 billion to shareholders through dividends and buybacks, unlike Amazon, which still doesn’t repurchase stock or pay dividends.
2. The New OpenAI Agreement
🤝 Microsoft + OpenAI Rewrite the Rules
The new deal changes how the two companies work together—and where they compete. Microsoft keeps its advantage in Azure scale for years to come, but OpenAI now has more flexibility to partner elsewhere and pursue AGI on its own path.
What Microsoft Gets:
A 27% stake in the new OpenAI public benefit corporation, valued around $135 billion.
Commercial rights to OpenAI models through 2032, including anything that comes after an AGI breakthrough.
A $250 billion commitment from OpenAI for Azure spending.
No more exclusive hosting OpenAI can now use other cloud providers.
If OpenAI claims to reach AGI, an independent panel must verify it.
Once AGI is confirmed (or by 2030, whichever comes first), revenue sharing ends and Microsoft’s research access narrows.
Microsoft can still work on AGI independently, but its compute use is limited if it’s built on OpenAI tech.
Why It Matters MoonMaster ?
These terms remove some valuation uncertainty for Microsoft, letting investors more clearly account for its OpenAI stake. The Azure commitment also helps justify record AI infrastructure spending with solid visibility into future demand. But OpenAI’s new freedom to fundraise and expand across multiple clouds and to build out new revenue streams like advertising puts more pressure on AWS and raises fresh competitive questions for Google.
🎮 Game Pass Under Pressure
Microsoft just raised prices and revamped Game Pass, and fans noticed! (here we go again)
What Changed ?! The Ultimate tier jumped 50% to $29.99 per month. Microsoft says the higher price comes with more content 400+ games, 75+ day-one titles, Ubisoft+ Classics, and 1440p cloud streaming but the increase is steep.
Dont miss KEEPER and Ninja Gaiden 4 on gamepass by the way!
PC Game Pass also rose from $11.99 to roughly $16.49 per month. The Call of Duty add-on discount quietly disappeared, and rollout timing varied by region.
Why Now ? Reports suggest Call of Duty: Black Ops 6 on day-one Game Pass last year boosted subscribers but cost as much as $300 million in lost full-price sales. The new pricing is meant to rebalance that trade-off.
Competitive Context:
Sony has nudged PlayStation Plus prices upward, but it doesn’t offer day one releases. That keeps full-price game sales healthier on PlayStation.
Microsoft’s Strategy:
CEO Satya Nadella described Xbox as a platform that spans devices—TVs, PCs, handhelds, and cloud apps so the console is “an endpoint, not the endpoint.” The goal is to make Xbox services available anywhere, even on rival platforms.
What It Means for Game Pass:
More devices mean a bigger audience, but less leverage from console exclusives. Growth will have to come from higher average revenue per user (through tiering, add-ons, and premium pricing) and from monetizing major IP titles at full price when it makes sense.
Bottom Line:
Game Pass is shifting from a growth-at-any-cost model to a premium subscription bundle built around strong content. The “everything is Xbox” approach broadens reach but reduces the old lock-in advantage. The key will be whether higher ARPU and pricing discipline can offset churn from price hikes. If not, Sony could keep its lead while regulators keep a close eye on consolidation.
3. Earnings Call Takeaways
On AI Scale and Capacity: “We will increase our total AI capacity by over 80% this year and roughly double our total data center footprint over the next two years. Fairwater (WI) alone will scale to 2 GW.”
Azure’s supply limits are real. Microsoft is front-loading construction to catch up with demand.
On Demand Signals: “Microsoft Cloud revenue hit $49 billion, up 26%. Commercial RPO climbed 50% to nearly $400 billion, with an average contract duration of about two years.”
That $368 billion backlog gives Microsoft strong revenue visibility and supports its aggressive AI spending.
On CapEx and Cash Flow: “We now expect FY26 CapEx growth to be higher than FY25.”
The spending peak isn’t here yet. Management wants to secure market share while demand stays strong.
On Copilot and Agent Adoption:
“We now have 900 million monthly active users of AI features. First-party Copilots topped 150 million MAU. Copilot chat adoption rose 50% quarter over quarter. Agent users doubled. PwC added 155,000 seats this quarter, with over 200,000 now deployed and 30 million interactions in six months.”
The shift from AI “features” to autonomous agents is accelerating. Usage is deepening, suggesting pricing power and future revenue growth.
On AI Bubble Concerns and Concentration Risk:
“We’ve been short on capacity for many quarters. Demand continues to rise. We avoid overly concentrated deals and are building a flexible fleet for both first- and third-party use”
In short, Microsoft’s expansion isn’t reckless. Its contracts match the lifespan of its infrastructure, keeping the risk of overbuilding low.
4. What Moves the Needle
🔌 Azure Demand: OpenAI’s $250 billion Azure commitment gives Microsoft strong visibility into future AI workloads, but execution risk remains high. Watch cloud market share trends.
☁️ Multi-Cloud Dynamics: OpenAI can now work with AWS (likely the main beneficiary). Oracle’s outlook improves with funding clarity. Google could face pressure if OpenAI pushes into ads and browser-based agents.
💸 CapEx Supercycle: Microsoft expects AI infrastructure spending to top $110 billion in FY26. Profitability depends on keeping data centers highly utilized as competition ramps up.
🧠 Copilot Monetization: The potential is still huge, but Microsoft must convert free or bundled users into paid seats. Sales teams are focused on packaging and attach-rate growth.
🎮 Gaming Mix: New Game Pass tiers and Activision titles will test whether Microsoft can lift ARPU and engagement while console sales normalize.
⚖️ Regulatory Headwinds: The EU already forced Microsoft to unbundle Teams, and regulators in the UK and EU continue to scrutinize AI and cloud partnerships. Pricing and bundling rules could shift again.
Let’s see how far Microsoft can drive it before the tank runs dry..
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Le informazioni ed i contenuti pubblicati non costituiscono in alcun modo una sollecitazione ad investire o ad operare nei mercati finanziari. Non sono inoltre fornite o supportate da TradingView. Maggiori dettagli nelle Condizioni d'uso.
🟣MasterClass moonypto.com/masterclass
🟢Signal moonypto.com/signal
🔵News t.me/moonypto
⚪ t.me/moonyptofarsi
🟢Signal moonypto.com/signal
🔵News t.me/moonypto
⚪ t.me/moonyptofarsi
Pubblicazioni correlate
Declinazione di responsabilità
Le informazioni ed i contenuti pubblicati non costituiscono in alcun modo una sollecitazione ad investire o ad operare nei mercati finanziari. Non sono inoltre fornite o supportate da TradingView. Maggiori dettagli nelle Condizioni d'uso.