Microsoft Financial Results: FY26

Microsoft’s financial year ended on June 30, 2026 and, as usual, there aren’t many surprises. Microsoft continues to make an enormous amount of money, Azure continues to grow at a strong rate, and AI is still absolutely everywhere.

But there are a few things in these results that are particularly interesting from a licensing and FinOps perspective.

So, let’s dive in.

The headline numbers

For the full financial year:

• Revenue = $331.8 billion, an increase of 16%
• Net Income = $133.7 billion, an increase of 31%
• Azure revenue surpassed $100 billion
• Microsoft 365 Copilot has more than 30 million paid seats

So, yes, Microsoft is still generating an insane amount of money and the Q4 numbers were also pretty impressive:

• Revenue = $90 billion, up 18%
• Net Income = $35.8 billion, up 31%
• Microsoft Cloud revenue = $59.3 billion, up 27%

Alongside this, Microsoft’s investment in AI infrastructure continues at quite a pace:

Capital expenditure increased by 70% to $41 billion in Q4, with Microsoft saying this was to support demand for cloud and AI offerings. Around two-thirds of that spending- almost $27 billion – was on CPUs and GPUs.

That level of spending contributed to a 23% decrease in free cash flow for the quarter, although Microsoft still generated $19.6 billion. When software vendors need money, they look to their customers so this big CAPEX outlay is likely to have an impact on pricing and discounts.

AI is still the focus

Satya Nadella’s opening comments were very much in line with what we’ve been hearing from Microsoft for the last couple of years.

He said:

“We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results”

I think that wording is interesting.

There is obviously still an enormous focus on AI consumption, but Microsoft (and everyone else involved with AI) increasingly needs to talk about the value customers are getting from that consumption.

It’s one thing to tell organisations that they can use millions of tokens. It’s another thing to explain what those tokens actually achieved.

Satya also talked about two goals for Microsoft:

1. Making sure AI empowers people and increases their ability to achieve what they want to achieve.
2. Helping organisations build their own continuous learning loops without outsourcing their core intellectual property.

To support this, Microsoft has added 31 new datacentres across five continents, bringing the total to 88.

So the investment in infrastructure isn’t slowing down. Where is the money coming from?

Microsoft 365 and Copilot

Microsoft says that hundreds of enterprise customers have already purchased millions of Microsoft 365 E7 seats.

Alongside E5 and Copilot, this is helping drive ARPU — Average Revenue Per User growth.

And that is an important metric for Microsoft. As I’ve mentioned in previous posts, Microsoft doesn’t just want more customers. It wants to make more money from each customer and E5, Copilot, and now E7 are all part of that strategy.

Microsoft 365 Commercial revenue increased by 14% for the full year, while seats increased by 6%, driven by SMB and F-SKUs.

M365 Copilot has now passed 30 million paid seats. Of course, it’s still only a proportion of the overall Microsoft 365 user base, so there is potentially a lot more growth available if Microsoft can convince customers to roll Copilot out more widely.

Consumption is becoming increasingly important

This is probably the bit of the results that we all need to pay the most attention to.

Microsoft is continuing to move away from a world where software is simply purchased as a fixed number of licences. Consumption is becoming a much bigger part of the Microsoft business.

For example, Microsoft says that usage-based credit consumption for Dynamics 365 Customer Service increased fourfold quarter over quarter.

And GitHub Copilot switched to a consumption model on June 1 where Microsoft says it has already seen “significant consumption revenue” since the new model came into effect.

This is something I’ve been banging on about for a while now.

The traditional software licensing model was relatively easy to understand:

How many users do you have? Multiply that by the price per user.

Consumption changes that.

Now you need to understand what people are doing with the software, how much they are using it and what that usage is costing. AI is accelerating this shift dramatically.

Microsoft clearly believes this is working — and I expect we’ll see much more of it.

Productivity & Business Processes

The Productivity & Business Processes segment generated $37.8 billion, up 14%.

Within that:

• Microsoft 365 Commercial revenue increased 14%
• Microsoft 365 Commercial seats increased 6%
• Dynamics 365 revenue increased 13%

Again, the important thing here is that Microsoft is getting growth from both more users and increased revenue from those users.

The move towards E5, E7 and Copilot gives Microsoft plenty of opportunities to increase ARPU without necessarily needing a corresponding increase in seat numbers.

Intelligent Cloud

Intelligent Cloud revenue was $39.3 billion, an increase of 32%.

Azure revenue increased by 43%.

And for the full financial year, Azure passed the rather significant milestone of $100 billion in annual revenue.

Databases are growing

Microsoft says cloud databases are surging, driven by AI systems’ need for access to data.

PostgreSQL revenue increased by 55%.

Microsoft is also launching Horizon DB, a new fully managed PostgreSQL service in Azure.

This makes sense. AI might be the headline story, but AI needs data. Lots of it. That means databases, storage and all of the other services supporting AI workloads stand to benefit from the growth in AI consumption.

Microsoft Fabric

Microsoft Fabric now has more than 40,000 paid customers.

That’s up from 35,000 just a few months ago. Fabric is another good example of Microsoft’s broader strategy: bring multiple capabilities together, make them easier to consume and then monetise the consumption.

Agent 365

There are now almost 40 million agents registered in Agent 365.

We’ve gone from talking about individual users having Copilots to organisations having thousands of software agents doing work on their behalf.

And that creates a whole new set of questions.

• Who owns the agent?
• How do you control what it can access?
• How do you measure what it is doing?
• And, perhaps most importantly, how much is it costing?

If software moves from being something a person uses to something that can operate autonomously, the traditional per-user licensing model becomes increasingly difficult to apply.

So what does this mean for customers?

There are three things that stand out to me from these results.

1. AI isn’t slowing down

Microsoft is spending enormous amounts of money building the infrastructure required to support AI.

The $41 billion quarterly capital expenditure figure tells you that.

Microsoft clearly believes the demand is there. We’ll find out if they’re right in a couple of years.

2. Consumption billing is coming for more of your Microsoft estate

If you’re still thinking about Microsoft licensing purely in terms of users × licences × price, you’re going to increasingly find that model doesn’t describe what you’re actually buying.

Now we’re seeing the same approach spread into Dynamics, GitHub Copilot, Microsoft 365 and AI services.

That means FinOps and ITAM are going to have to work increasingly closely together.

3. The value question is becoming more important

Microsoft isn’t just talking about AI adoption anymore.

They’re talking about the cost-to-outcome curve. Customers are going to need to understand not just how much AI they’re consuming, but what they’re getting from it.

If you’re spending millions on AI tokens, you need to know what those tokens are actually achieving. Otherwise, you’re just measuring consumption and that’s only part of the story.

One final thought

Microsoft has just finished another enormous year.

• $331.8 billion of revenue
• $133.7 billion of net income
• $100 billion+ of Azure revenue
• 30 million+ paid Copilot seats

Tens of billions being invested in the infrastructure needed to support the next phase of AI.

Microsoft is becoming a business that combines licensing and consumption.

For all of us working in ITAM, FinOps, and/or Microsoft licensing, understanding how those two worlds come together is going to be increasingly important.