AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 6/6 · 18/10/2026
Moat63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 3/4 · Critical-workload dependence, product interdependence and disclosed cloud scale mechanisms are supported by growing demand and reported efficiencies. Comparative superiority over major rivals remains unquantified.
durability · 2/4 · Multi-year agreements and three-year cloud growth support persistence, but AI-first competition, substitutable functionality and accelerated infrastructure commitments leave long-term durability mixed.
customer dependency · 3/4 · Disclosed reliance on critical functions and interdependent workloads provides direct evidence of dependency. Seat and subscriber growth corroborate demand, without quantifying customer exit costs.
erosion resilience · 2/4 · Monetization and software efficiency gains demonstrate adaptation, while realized cloud margin pressure shows incomplete insulation from AI costs. Regulatory and substitution risks are possibilities rather than proof of realized moat loss.
Pricing power63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 3/4 · Commercial and Consumer cloud revenue per user increased alongside seat and subscriber growth, demonstrating stronger realized monetization. Copilot and E5 mix contributed, so the evidence does not isolate like-for-like price increases or establish equivalent power across Microsoft.
retention · 3/4 · Critical-workload reliance, multi-year agreements, growing seats and subscriber growth support durable demand and switching friction. This is an indirect operating assessment, not a measured renewal or churn rate.
margin resilience · 2/4 · Operating income increased across the disclosed years and Microsoft 365 efficiency gains improved gross margin percentage despite AI usage. Intelligent Cloud gross margin percentage declined as infrastructure costs rose, producing a mixed assessment.
contractual freedom · 2/4 · Microsoft discloses the ability to modify pricing and commercial arrangements, supporting some discretion. Multi-year agreements constrain an inference of immediate repricing freedom, and specific unilateral amendment or renewal rights are absent.
Predictability98
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 4.14
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 4.34
Financial strength84
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 100.00
- netDebtEbitGrade
- 97.51
- interestCoverageGrade
- 100.00
- currentRatioGrade
- 38.43
- Debt / FCF (x)
- 0.60
- Net debt / operating income (x)
- 0.12
- Interest coverage (x)
- 50.88
- Current ratio (x)
- 1.23
Capital allocation88
Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year pre-tax operating return (%)
- 39.68
- 3-year average dilution (%)
- -0.08
- 3-year average SBC / revenue (%)
- 4.12
- cashConversionGrade
- 65.70
Management69
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Nine-month operating cash flow of $127.5 billion covered $80.1 billion of property additions and substantial shareholder distributions, while weighted average shares declined slightly. Full-year investing outflows rose sharply, liquidity fell and XBOX impairment expenses demonstrate uneven outcomes. Returns on accelerated AI commitments remain unproven.
incentive alignment · 3/4 · Actual three-year performance-award results and payouts, together with a relative shareholder-return modifier, demonstrate implemented performance linkage. This supports strong alignment without establishing exceptional incentive design; executive ownership and comprehensive award economics are missing.
execution · 3/4 · Three-year revenue and operating-income growth, expanding Microsoft 365 seats and improved monetization demonstrate execution through operating outcomes. These are indirect measures of management contribution; gaming impairment and cloud cost pressure temper the conclusion.
governance · 3/4 · Disclosed shareholder rights, independent committee oversight and a completed externally facilitated board evaluation support strong governance practices. The combined CEO and chair role is a counterweight; the evidence does not establish exceptional oversight effectiveness.
Evidence
Our customers increasingly rely on us for critical business functions and multiple workloads.
Risk Factors / customer reliance on critical business functions · Filed 29/04/2026
Many of our products and services are interdependent on one another.
Risk Factors / product and service interdependence · Filed 29/04/2026
We compete by providing secure, integrated industry-specific, and easy-to-use productivity and collaboration tools and services that create comprehensive solutions and work well with technologies our customers already have both on-premises or in the cloud.
Business / productivity competition and integration · Filed 29/07/2026
Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period.
MD&A / unearned revenue and multi-year agreements · Filed 29/07/2026
Microsoft 365 Commercial cloud revenue grew 17% with growth in revenue per user driven by Microsoft 365 Copilot and Microsoft 365 E5.
MD&A / fiscal 2026 Microsoft 365 Commercial cloud monetization · Filed 29/07/2026
Microsoft 365 Commercial seats grew 6% driven by small and medium businesses and frontline worker offerings.
MD&A / fiscal 2026 Microsoft 365 Commercial seat growth · Filed 29/07/2026
Microsoft 365 Consumer cloud revenue grew 28% driven by growth in revenue per user and Microsoft 365 Consumer subscriber growth of 7%.
MD&A / fiscal 2026 Consumer revenue per user and subscriber growth · Filed 29/07/2026
Competitors to Office include software and global application vendors, such as Apple, Cisco Systems, Google, Meta, Proofpoint, Slack, Symantec, Zoom, and numerous web-based and mobile application competitors as well as local application developers.
Business / fiscal 2024 named Office competitors · Filed 30/07/2024
Competition Competitors to Office include software and global application vendors, web-based and mobile application companies, AI-first application companies, as well as local application developers.
Business / Office competitor categories including AI-first applications · Filed 29/07/2026
Some open-source products mimic the features and functionality of our products.
Risk Factors / open-source functional substitutes · Filed 29/07/2026
Weaknesses in our processes could result in defects we do not detect and fix in pre-release testing, which could cause reduced sales, damage to our reputation, repair or remediation costs, delays in the release of new products or versions, or legal liability, and could adversely affect our business, financial condition, and results of operations.
Risk Factors / potential consequences of reliability defects · Filed 29/04/2026
Competition law enforcement actions and court decisions along with new market regulations may result in fines or hinder our ability to provide the benefits of our software to consumers and businesses, reducing the attractiveness of our products and the revenue that comes from them.
Risk Factors / competition enforcement and market regulation · Filed 29/07/2026
Our cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs.
Business / three cloud economies of scale · Filed 29/07/2026
84 PART II Item 8 Revenue, classified by significant product and service offerings, was as follows: (In millions) Year Ended June 30, 2026 2025 2024 Server products and cloud services $ 129,425 $ 98,435 $ 79,828 Microsoft 365 Commercial products and cloud services 101,997 87,767 76,969 XBOX 21,790 23,455 21,503 LinkedIn 19,817 17,812 16,372 Windows and Devices 17,084 17,314 17,026 Search advertising 15,176 13,878 12,306 Microsoft 365 Consumer products and cloud services 9,175 7,404 6,648 Dynamics products and cloud services 9,006 7,827 6,831 Enterprise and partner services 8,260 7,760 7,594 Other 109 72 45 Total $ 331,839 $ 281,724 $ 245,122 Our Microsoft Cloud revenue, which includes Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365, was $214.4 billion, $168.9 billion, and $137.7 billion in fiscal years 2026, 2025, and 2024, respectively.
Note 18 / fiscal 2024–2026 product and Microsoft Cloud revenue · Filed 29/07/2026
Gross margin percentage decreased driven by the continued investments in AI infrastructure, offset in part by efficiency gains in Azure.
MD&A / Intelligent Cloud gross margin pressure and Azure efficiency gains · Filed 29/04/2026
Gross margin percentage increased driven by efficiency gains in Microsoft 365 Commercial cloud even with continued investments in AI infrastructure and growing AI product usage.
MD&A / Microsoft 365 Commercial cloud efficiency gains · Filed 29/04/2026
These investments are being made at significant scale and on an accelerated timeline, require substantial and increasing capital expenditures and continued access to capital, and are in advance of fully developed revenue streams.
Risk Factors / accelerated capital expenditures ahead of developed revenue streams · Filed 29/07/2026
There are few qualified suppliers for certain components of our servers and devices.
Business / limited qualified component suppliers · Filed 29/07/2026
The cost or availability of critical resources necessary to support our infrastructure, including power, networking supplies, servers, graphics processing units, and other components, could be adversely affected by a variety of factors, including supply chain and energy issues, evolving environmental or other regulations, and geopolitical disruptions.
Risk Factors / infrastructure resource costs and availability · Filed 29/07/2026
As we manage infrastructure capacity constraints and evolving customer demand, we may modify capacity allocations, deployment priorities, pricing, or other commercial arrangements.
Risk Factors / ability to modify pricing and commercial arrangements · Filed 29/07/2026
Segment revenue, cost of revenue, operating expenses, and operating income were as follows during the periods presented: (In millions) Year Ended June 30, 2026 2025 2024 Productivity and Business Processes Revenue $ 139,996 $ 120,810 $ 106,820 Cost of revenue 25,017 22,422 19,611 Operating expenses 31,100 28,615 27,548 Operating income $ 83,879 $ 69,773 $ 59,661 Intelligent Cloud Revenue $ 137,791 $ 106,265 $ 87,464 Cost of revenue 57,876 40,171 29,611 Operating expenses 22,943 21,505 20,040 Operating income $ 56,972 $ 44,589 $ 37,813 More Personal Computing Revenue $ 54,052 $ 54,649 $ 50,838 Cost of revenue 23,481 25,238 24,892 Operating expenses 16,185 15,245 13,987 Operating income $ 14,386 $ 14,166 $ 11,959 Total Revenue $ 331,839 $ 281,724 $ 245,122 Cost of revenue 106,374 87,831 74,114 Operating expenses 70,228 65,365 61,575 Operating income $ 155,237 $ 128,528 $ 109,433 No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for fiscal years 2026, 2025, or 2024.
Note 18 / fiscal 2024–2026 segment revenue and operating results · Filed 29/07/2026
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.
Cash Flows Statements / nine months ended March 31, 2026 and 2025 · Filed 29/04/2026
Cash used in investing increased $66.9 billion to $139.5 billion for fiscal year 2026, primarily due to a $51.4 billion increase in additions to property and equipment and a $22.2 billion increase in cash used in other investing primarily to facilitate the purchase of components, offset in part by a $4.2 billion decrease in cash used in the acquisition of companies, net of cash acquired and divestitures, and purchases of intangible and other assets and a $2.4 billion decrease in cash used in net investment purchases, sales, and maturities.
MD&A / fiscal 2026 investing cash outflows and infrastructure spending · Filed 29/07/2026
Cash, cash equivalents, and short-term investments totaled $76.8 billion and $94.6 billion as of June 30, 2026 and 2025, respectively.
MD&A / June 2026 and June 2025 liquidity · Filed 29/07/2026
Performance against the core metrics under these PSAs is shown in the following table: Fiscal Year 2023 PSA Core Metric Performance and Payout Percentages PSA Core Metrics Aggregate Weighting Weighting Threshold Target Maximum Actual Result Final Payout FY23 Core Metrics – Year 11 1/3 99.65% FY24 Core Metrics – Year 22 1/3 119.69% FY25 Core Metrics – Year 33 1/3 103.69% Azure and Other Cloud Services Revenue Growth4 35% 29.23% 36.76% 44.28% 34.58% 85.52% Microsoft Cloud Revenue Growth, excluding Azure and Other Cloud Services5 35% 8.09% 14.38% 20.67% 14.77% 106.20% Consumer Services Revenue Growth6 15% -0.01% 11.09% 22.20% 15.59% 140.50% Xbox Content and Services Revenue Growth7 15% -2.90% 14.23% 31.37% 14.81% 103.38% FY23 PSA 3-Year Average Payout 107.68% (1) Fiscal Year 2023 Core Metric results related to Microsoft Cloud Revenue (weighted at 30%) with a resulting payout of 81.68%, Microsoft Cloud Subscribers Growth (weighted at 20%) with a resulting payout of 76.85%, Teams Monthly Active Usage Growth (weighted at 20%) with a resulting payout of 141.12%, Xbox Content and Services Growth (weighted at 10%) with a resulting payout of 91.05%, Windows 10/11 Monthly Active Devices Growth (weighted at 10%) with a resulting payout of 99.24%, and LinkedIn Sessions (weighted at 10%) with a resulting payout of 125.19%.
Compensation Discussion and Analysis / actual three-year performance award results · Filed 21/10/2025
Due to the dynamic nature of our business and the specificity of the performance metrics that are chosen under our PSA program, we believe that measuring performance annually over our three-year performance period and modifying the actual awards eligible to be earned based on our three-year relative TSR provides the most accurate and holistic assessment of Microsoft’s long-term trajectory and performance achievements.
Compensation Discussion and Analysis / three-year performance period and relative TSR modifier · Filed 21/10/2025
Independent, Effective Board Oversight • Lead Independent Director • 11 of 12 director nominees are independent • All committee chairs and members are independent • Board-adopted refreshment commitment to maintain an average tenure of 10 years or less for its independent directors as a group • The Board is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool of potential Board nominees and CEO candidates • Executive sessions provided for all quarterly Board and committee meetings • Annual Board and committee evaluations, periodically using a third-party facilitator to conduct the evaluations • Director orientation and continuing education and strategy programs for directors • All current Audit Committee members meet the Nasdaq Stock Market LLC listing standard of financial sophistication, and three members are “audit committee financial experts” under the Securities and Exchange Commission rules Shareholder Rights • Single class of stock with equal voting rights • All directors are elected annually • Directors are elected by majority vote in uncontested elections • Confidential voting policy • 15% of outstanding shares can call a special meeting • Our Bylaws provide for “proxy access” by shareholders See Part 1 – Board of Directors and Governance and Part 5 – Information About the Meeting for more information.
Proxy Summary / governance practices and shareholder rights · Filed 21/10/2025
The Board of Directors, through its Audit Committee, consisting solely of independent directors of the Company, meets periodically with management, internal auditors, and our independent registered public accounting firm to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting.
Financial reporting oversight / independent Audit Committee · Filed 29/07/2026
In fiscal year 2025, the evaluation included utilizing a third-party facilitator to seek feedback from each director on the performance of the Board and each committee.
Governance / completed fiscal 2025 external-facilitated board evaluation · Filed 21/10/2025
Signature Title /s/ SATYA NADELLA Chairman and Chief Executive Officer (Principal Executive Officer) Satya Nadella /s/ CARMINE DI SIBIO Director Carmine Di Sibio /s/ REID G.
Signatures / combined Chairman and Chief Executive Officer roles · Filed 29/07/2026
Operating expenses increased $940 million or 6% driven by impairment and other related expenses in our XBOX business and continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio.
MD&A / XBOX impairment and other related expenses · Filed 29/07/2026
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.
Income Statements / weighted average shares and operating results · Filed 29/04/2026
