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Microsoft Financial Results: FY26 Q3


As I say every few months, it’s another bumper quarter for Microsoft with all the numbers getting bigger.

  • Revenue = $82.9 billion (up 18%)
  • Net Income = $31.8 billion (up 23%)
  • Microsoft Cloud = $54.5 billion (up 29%)

Microsoft had Operating Expenses of $17.7 billion this quarter and say they were “primarily driven by continued investments in R&D compute capacity, AI talent, and data“.

Productivity & Business Processes

  • Revenue = $35 billion, up 17%
  • Microsoft 365 Commercial cloud revenue increased 19%
  • Dynamics 365 revenue increased 22%

M365 Copilot is now over 20 million paid seats. That’s a 33% increase over Q2 (where it was 15 million) but still a fraction of the overall customer base.

Paid M365 Commercial seats grew 6% YoY and ARPU increased driven by E5 & M365 Copilot.

Intelligent Cloud

  • Revenue = $34.7 billion, up 30%
  • Azure increased 40%

Earnings Call

Satya Nadella started by saying “We are at the beginning of one of the most consequential platform shifts that will change the entire tech stack as agents proliferate and become the dominant workload.”

  • He says there are “Tens of thousands of companies are already managing tens of millions of agents in Agent 365” – frankly, that surprises me.
  • Cosmos DB had 50% YoY revenue growth
  • Microsoft Fabric up to 35,000 paid customers, a 60% YoY increase
  • Copilot Credit spend almost doubled quarter over quarter
  • Nearly 60% of “service customers” are buying consumption credits

I’ve been banging on about consumption billion (aka Pay as You Go) billing for a few years now and it’s definitely where Microsoft (and a lot of the software industry) is going. Amy Hood, MS CFO, said;

“I start to think about it as a license business plus a consumption business, and really applying far more broadly than I think people have thought about that. And so, it starts to mean that over time, bookings will actually also look a little different. It’ll still have that per-seat license logic, but it’ll also have a meter, just like you see in Azure.”

and Satya said:

“seat-based pricing is just entitlement to some consumption”

While I think he means that seat based licenses are effectively a bundle of some consumption packaged up, that certainly sounds like it being a gateway to more consumption charges…which of course it is in many cases.

See more info here – FY26 Q3 – Press Releases – Investor Relations – Microsoft

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Microsoft Product Terms: May 2026


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Updated terms to support the launch of Software Assurance in the Microsoft Customer Agreement (MCA/CSP) added

M365 E7 added

Agent 365 added

Windows 365 for Agents add-on for Agent 365 added
Windows 365 for Agents add-on for Microsoft Copilot Studio added

Axure Capacity Blocks added – see more here https://cloudywithachanceoflicensing.com/2026/05/13/microsoft-azure-capacity-blocks/

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GitHub Copilot moving to consumption billing


Software developers collaborating with multiple monitors and AI interface holograms in an open office
A group of software developers collaborate around computers with AI interfaces in a modern office

From June 1st, GitHub Copilot usage will start to consume GitHub AI Credits. Microsoft say that, as Copilot use has changed and become more complex, inference costs have increased and they can no longer sustain the current premium request unit (PRU) model.

Copilot features that consume AI credits include Copilot Chat, Copilot CLI, Copilot cloud agent, Copilot Spaces, Spark, and third-party coding agents.

Every Copilot plan will include an amount of GitHub AI Credits, and paid plan users will be able to purchase additional credits if needed. Microsoft say that “usage will be calculated based on token consumption, including input, output, and cached tokens“.

  • Copilot Business: $19/user/month, including $19 in monthly AI Credits
  • Copilot Enterprise: $39/user/month, including $39 in monthly AI Credits

There will be higher credits included for June, July, and August:

  • Copilot Business: $30 in monthly AI Credits
  • Copilot Enterprise: $70 in monthly AI Credits

1 AI credit = $0.01 USD so the standard inclusions are:

PlanTotal AI credits per user per month
Copilot Business1,900
Copilot Enterprise3,900

As is becoming common in FinOps for AI, the choice of models used for tasks will become much more important with this change. For example:

  • GPT 4.1 is $2 per input token and $8 per output token
  • GPT 5.5 is $5 per input token and $30 per output token
  • Claude Haiku 4.5 is $1 per input token and $5 per output token
  • Claude Opus 4.7 is $5 per input token and $25 per output token

Significant price differences for sure! See more here.

Usage will be pooled across an organisation which may help reduce the impact of this, depending how uniformly your teams use these features. A “Preview Bill Experience” has been introduced earlier in May to give users a view of what your consumption bill will look like. (That’s quite a good idea but more than a 1 month run up would have been better0.

A few key things to note:

  • Base plan pricing isn’t changing.
  • Code completions and Next Edit suggestions will not consume AI credits.
  • Credits do not roll over from month to month.
  • Fallback experiences will no longer be available.
  • Copilot code review will consume GitHub Actions minutes AND GitHub AI Credits.

See the Microsoft announcement here – GitHub Copilot is moving to usage-based billing – The GitHub Blog

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Microsoft Azure Capacity Blocks


Pixel art style cloud above data center buildings with digital data streams connecting them
Digital cloud linking to a modern data center in a pixel art style.

A new addition, Azure Capacity Blocks (ACB):

“allow Customers to purchase a fixed duration block of capacity for a specific Microsoft Azure resource in a specified region, with a scheduled start date in the future.”

They can range from 1 day to 6 months, they are fully paid for upfront, and cannot be cancelled or refunded. Unused portions of ACBs will not be refunded either. Once the term ends, customers “will be evicted from the applicable capacity, and Microsoft will stop Customer’s use of the applicable Microsoft Azure Services.”

When I initially looked, there was a Learn site for this new release but I cannot find it now. Not sure if it’s been removed or I (and ChatGPT) just aren’t looking in the right place all of a sudden 🤔

This new offering must be related to the capacity issues that Microsoft have been having in their Azure datacentres – will it help prevent that from reoccuring?

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Microsoft Product Terms: March & April 2026


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March:

Windows 10 ESU Cloud Managed Requirements updated to state “Intune & Entra ID” as license requirements for user access.

Microsoft Entra ID Governance External Identities rebranded to Microsoft Entra ID Governance for Guests

Azure Arc license restrictions updated for Windows Server

April:

SQL Server & Windows Server Subscriptions on MCA/CSP get rights equivalent to Software Assurance (SA)

Windows 10 Enterprise LTSB ESU added

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Microsoft Product Terms: February 2026


Photo by Markus Winkler on Pexels.com

Microsoft Defender for EndPoint P2 Add-on for M365 E3 added to MCA for CSP

Microsoft Entra ID P2 Add-on for M365 E3 added to MCA for CSP

Dragon Copilot Physician Practice Per User added to MCA for CSP

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Microsoft CSP subscriptions get License Mobility rights


Boxes labeled Software Assurance and Cloud Solution Provider on a futuristic train track

Microsoft have announced that, from April 1st 2026, CSP subscription products have the full equivalent rights of their volume license w/ Software Assurance counterparts.

The big thing here is that eligible CSP subscriptions now have License Mobility (through Software Assurance) rights – so you can take them to Authorised Mobility Partner clouds – including the Listed Providers i.e. Amazon AWS, Google GCP, and Alibaba.

Eligible server products are:

  • Windows Server External Connectors*
  • Windows Server RDS User CALs*
  • Microsoft SQL Server
  • Microsoft Exchange Server
  • Microsoft SharePoint Server
  • Microsoft System Center servers
  • Microsoft Dynamics 365 Operations Server
  • This applies to subscriptions only (not perpetual licenses)
  • *Windows Server subscriptions are NOT included, as Windows Server does not have License Mobility rights.

This was the big remaining difference – it furthers the rise of CSP as an alternative to volume licensing and reduces the scope for Microsoft to be accused of anti-competitive behaviour against the Listed Providers and customers.

See more from Microsoft here – April 2026 announcements – Partner Center announcements | Microsoft Learn

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Microsoft announces Azure Savings Plan for Databases


Microsoft has announced “Savings Plan for Databases” – a new option to manage Azure cloud costs, alongside the existing “Savings Plan for Compute”.

Just like the AWS version (announced in December 2025), this helps organisations reduce spend on certain databases while giving additional freedom when compared to Reserved Instances – but, due to the added flexibility, giving lower discount levels.

Rather than committing to a specific service/region etc., Savings Plans allow you to commit to a level of hourly spend that can be applied across a range of services.

Savings Plans for Databases are worth considering when you have a predictable baseline of database spend but still need flexibility in how that spend is consumed. If your environment includes multiple database engines, regions, or services that change over time, committing to a fixed hourly spend can unlock savings without being as specific as with Reserved Instances.

They are particularly useful where workloads are steady in aggregate but variable at an individual service level. If you can reliably forecast a minimum level of database spend each hour, a savings plan can reduce costs while preserving freedom.

Announcing savings plan for databases: flexible savings for modern, evolving workloads | Microsoft Community Hub

What services are covered?

A range of database options, including Cosmos DB, are covered with discount levels varying:

Announcing savings plan for databases: flexible savings for modern, evolving workloads | Microsoft Community Hub

It seems these new Savings Plans are available just in 1-year variants and, assuming they follow the same method as Savings Plan for Compute, can be paid for upfront or monthly with no impact to the total amount.

This announcement helps bring Azure to parity with AWS (in this area) and will enable some organisations to make additional savings. As always, be sure to work out how it will apply to your specific contract and scenario.

See more from Microsoft here – Announcing savings plan for databases: flexible savings for modern, evolving workloads | Microsoft Community Hub

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Microsoft 365 E7 is announced


Microsoft 365 E7 is here!

There have been rumours for years but now it is official, there is a new member of the M365 family…the Frontier Suite as Microsoft are calling it, ready to bring humans and agents together.

Leading Frontier Firm transformation with Microsoft 365 E7: The partner opportunity

The release date is May 1, 2026 for $99 per user per month. The separate pricing will be (after the July 1st price increase) $60 for E5, $33 for M365 Copilot, and $15 for Agent365 so E7 represents a saving.

This is a quick post to get this info available – I’ll do further posts looking more at Agents 365, exactly what’s included in E7, and how pricing stacks up etc.

See more from Microsoft:

Introducing the First Frontier Suite built on Intelligence + Trust – The Official Microsoft Blog

Partner Blog | Introducing Microsoft 365 E7: The Frontier Suite | Microsoft Community Hub

Leading Frontier Firm transformation with Microsoft 365 E7: The partner opportunity

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Microsoft Financial Results FY26 Q2


Microsoft Financial Results for Q2 FY26

Revenue = $81.3 billion (up 17%)

Net Income = $38.5 billion (up 60%)

Microsoft Cloud = $51.5 billion

As it has been every quarter for many years now, more big increases across the board as Microsoft continues to grow. They have RPO (Remaining Performance Obligation) of $625 billion, an increase of 110%, which indicates a lot of multi-year agreements have been signed. This huge backlog of guaranteed revenue likely means that Microsoft aren’t as bothered about your order/renewal as you might like them to be…making discounts harder to come by for many customers.

Is AI still a hot topic?

Yes!

Satya Nadella, Microsoft CEO said:

“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”

“We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.”

And devoted the majority of his time on the earnings call to discussing AI, both software and hardware.

Additionally, Q2 saw commercial booking increase 230%, “driven by Azure commitments from OpenAI and Anthropic”. Further more, Perplexity have also signed a $750 million deal with Azure – https://www.msn.com/en-us/money/other/perplexity-inks-microsoft-ai-cloud-deal-amid-dispute-with-amazon/

Productivity & Business Processes

Revenue = $51.5 billion, an increase of 26%

Dynamics 365 revenue increased 19%

Microsoft 365 Commercial cloud revenue increased 17% with ARPU (Average Revenue Per User) driven by E5 and M365 Copilot.

Microsoft 365 Copilot seats added increased 160% year on year in FY26 Q2 (Oct – Dec 2025) taking them to 15 million paid seats. Of course, how many of those are being used – and being used well – is a different question entirely. 

Tracking and understanding ROI of AI investments isn’t as high a priority for most organisations as it should be. This really is an areas where ITAM & FinOps professionals can help organisations take a deeper, more data driven approach to AI procurement and value. I wrote this over 2.5 years ago – https://cloudywithachanceoflicensing.com/2023/07/21/microsoft-365-copilot-pricing-and-licensing-strategy/ – and I don’t think much has changed tbh.

Intelligent Cloud

Revenue = $32.9 billion, an increase of 29%

Azure increased by 39% (down from 40% in the previous quarter) but gross margin on cloud declined slightly. Market analysts were hoping for higher Azure growth so this perceived miss was partially responsible for a drop in Microsoft’s stock after the announcement.

They are also concerned that the huge amount of money Microsoft are spending on CAPEX related to AI datacentres etc. isn’t generating ROI fast enough.

Conclusion

Microsoft’s results underscore that licence management, cloud cost control, and financial governance are now inseparable, particularly as AI accelerates both consumption and complexity. 

For ITAM and FinOps leaders, Q2 FY26 is less about Microsoft’s growth and more about the operational response it demands: proactive review of AI and cloud commitments, tighter contract scrutiny, and implementation of usage intelligence. 

Organisations that align ITAM and FinOps processes to anticipate consumption variability and optimise spend can mitigate financial risk while maximising value from licences, cloud services, and emerging AI capabilities. Success will increasingly depend on granular monitoring, AI-informed analytics, and governance tools that bridge licensing, cloud, and financial metrics.

See more here – FY26 Q2 – Press Releases – Investor Relations – Microsoft

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