Microsoft posts record cloud revenue as AI adoption accelerates worldwide

Microsoft’s cloud business crossed the $50 billion quarterly revenue mark in FY26 Q2, driven by accelerating global adoption of artificial intelligence, strong Azure growth, and sustained enterprise demand for AI-enabled infrastructure and digital transformation services.

Microsoft Corporation reported strong financial performance in the second quarter of its 2026 fiscal year, led by rapid global adoption of artificial intelligence and record revenue from its cloud operations. Total revenue for the quarter ended December 31, 2025, increased 17% year-on-year to $81.3 billion, while net income rose sharply by 60% to $38.5 billion.

The company’s cloud segment emerged as the standout performer, with Microsoft Cloud generating $51.5 billion in quarterly revenue for the first time. The milestone highlights growing enterprise reliance on cloud-based platforms to deploy AI workloads, modernise IT infrastructure, and support data-intensive applications across industries.

Chief Executive Officer Satya Nadella described the results as evidence of AI entering a broad adoption phase, as organisations increasingly convert experimentation into production-scale deployments. He said Microsoft’s long-term investments in artificial intelligence and cloud infrastructure are now translating into measurable business outcomes.

Azure growth, infrastructure spending and mixed consumer trends

Azure, Microsoft’s core cloud platform, posted 39% growth during the quarter, driven by demand for AI services, analytics, and hybrid cloud solutions. To support this expansion, Microsoft significantly increased capital spending, with quarterly capital expenditure reaching $37.5 billion, up 66% year-on-year. Nearly two-thirds of this investment was allocated to data centres, including high-performance CPUs and GPUs needed to power advanced AI models.

While enterprise-focused segments such as Intelligent Cloud and Productivity continued to deliver strong growth, consumer-oriented businesses showed signs of softness. The More Personal Computing segment, which includes Windows and Xbox, reported a 5% decline in revenue. Xbox hardware sales dropped 32% during the quarter, reflecting slower demand in the global gaming console market.

Despite the mixed performance, Microsoft maintained its vast global footprint, with Windows 11 now used by more than one billion people worldwide. The results underline Microsoft’s strategic focus on cloud and AI as its primary growth engines, even as it navigates short-term challenges in consumer hardware markets.