Microsoft

Microsoft was founded in 1975 and is headquartered at One Microsoft Way in Redmond.  Its stated mission is “to empower every person and every organization on the planet to achieve more.”  Satya Nadella has served as CEO since 2014.

‍

Microsoft reports results across three operating segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.  The portfolio spans productivity software and collaboration tools, cloud infrastructure and developer services, plus Windows, devices, and gaming.  The company also owns major platforms like LinkedIn, which it acquired in 2016.

‍

In the latest reported quarter published on January 28, 2026, Microsoft said Microsoft Cloud revenue reached $51.5 billion and commercial remaining performance obligation rose to $625 billion.  A central product focus is “Copilot” branded AI experiences across its software stack, including Microsoft 365.  Microsoft also began rolling out the Microsoft 365 app rebrand to the “Microsoft 365 Copilot” app starting January 15, 2025, reflecting that AI positioning inside its core productivity suite.

Microsoft earns money through a mix of recurring subscriptions, cloud consumption, and platform licensing, anchored by three reporting segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.  In FY2025, Microsoft reported $281.7B in total revenue, reflecting the scale of its multi-engine model.  In the most recent quarter reported on January 28, 2026 (FY26 Q2), Microsoft said Microsoft Cloud revenue reached $51.5B and commercial remaining performance obligation rose to $625B, highlighting the weight of contracted, multi-year demand in its cloud business.

‍

Core activities

‍

1. Productivity subscriptions (Microsoft 365) and collaboration
   Microsoft monetizes Office, Teams, security, and compliance primarily via per-user subscriptions. In FY26 Q2, Microsoft reported Microsoft 365 Commercial cloud revenue growth of 17%, with revenue per user supported by higher-value suites and Copilot.
   ‍
2. Cloud infrastructure and platform services (Azure) plus server software
   Azure and related cloud services monetize via usage-based consumption across compute, storage, data, and AI services. In FY26 Q2, Microsoft reported Azure and other cloud services revenue grew 39%, and Intelligent Cloud revenue increased 29%.
   ‍
3. Business applications (Dynamics) and enterprise workflow
   Dynamics and related services monetize through subscriptions and seat-based licensing, often bundled into broader enterprise agreements alongside Microsoft 365 and Azure.
   ‍
4. Developer ecosystem (GitHub) and tooling
   GitHub strengthens Microsoft’s position with developers and enterprises, supporting Azure adoption and enterprise DevSecOps workflows. Microsoft acquired GitHub for $7.5B, and continues to position it as a major developer platform.
   ‍
5. Windows OEM, devices, gaming, and advertising
   Windows licensing, Surface, Xbox, and search and news advertising diversify cash flows and keep Microsoft embedded across consumer and commercial endpoints.
   ‍

Market position

‍

Microsoft holds a leading position in productivity software and collaboration, where Microsoft 365 is a default standard for many enterprises, reinforced by distribution through Windows and long-term enterprise agreements.  In cloud infrastructure, Microsoft is part of the “big three” alongside Amazon Web Services and Google Cloud, which together accounted for about 63% of enterprise cloud infrastructure spending in Q3 2025, based on Synergy Research.

‍

Strategically, Microsoft’s edge is the integration of identity, security, productivity, developer tooling, and cloud into a single procurement and deployment path, which lowers switching for large customers and supports cross-sell from Microsoft 365 into Azure and Dynamics. The main competitive pressures come from AWS and Google Cloud in infrastructure and AI services, and from enterprise app stacks like Salesforce and SAP in business applications.

Microsoft’s performance in China is shaped by a distinct operating model. Azure and several Microsoft cloud services in mainland China are delivered as physically separated environments that are operated and billed by local partner 21Vianet, in line with local regulatory requirements and data residency needs.  This structure supports enterprise adoption in regulated sectors, while it also creates feature and rollout gaps versus global Microsoft clouds, including Marketplace differences such as Microsoft AppSource availability.

‍

Recent platform changes matter for customers running workloads in China. Microsoft’s Azure updates state that China North 1 and China East 1 will be retired on July 1, 2026, pushing migrations toward newer regions.  Microsoft has also announced service retirements in Azure China, including Azure CDN retirement starting December 1, 2025, and planned retirements for security services like Microsoft Defender for Cloud and Microsoft Sentinel in China on August 18, 2026.

‍

Competitive context: China’s cloud infrastructure market is led by domestic providers, with Alibaba Cloud, Huawei Cloud, and Tencent Cloud holding the largest shares in recent market tracking.

Microsoft’s near-term growth profile stays cloud-led. In the quarter ended December 31, 2025 (reported January 28, 2026), Microsoft Cloud revenue reached $51.5B and grew 26%, while Azure and other cloud services grew 39%.  The company also reported commercial remaining performance obligation of $625B, which signals a large contracted backlog and multi-year demand visibility.

‍

Key growth drivers include
‍

1. Azure capacity expansion and AI workloads
   Microsoft is scaling infrastructure to meet demand, with management stating customer demand exceeds supply.
   ‍
2. Contracted backlog converting into revenue
   Commercial RPO reached $625B, with about 25% expected to be recognized in the next 12 months, which supports forward revenue conversion in core cloud offerings.
   ‍
3. Microsoft 365 ARPU uplift through higher-value suites and Copilot
   Microsoft 365 Commercial cloud revenue grew 17%. Management attributed ARPU leadership to E5 and Copilot, with commercial paid seats reaching over 450 million.
   ‍
4. Business applications and LinkedIn momentum
   Dynamics 365 grew 19% and LinkedIn grew 11%, which adds a second engine alongside core productivity subscriptions.
   ‍

Challenges ahead
‍

• Capital intensity and execution risk in datacenter build-out
  Quarterly capex was $37.5B, with roughly two-thirds tied to GPUs and CPUs and additional spend via finance leases for large datacenters.
  ‍
• Margin pressure from AI infrastructure and rising AI usage
  Company gross margin was 68%, down year over year, driven by AI infrastructure investments and higher AI product usage. Microsoft Cloud gross margin was 67%, down year over year.
  ‍
• Customer concentration tied to OpenAI commitments
  Management stated roughly 45% of commercial RPO relates to OpenAI, which increases concentration risk inside the backlog.
  ‍
• Mixed exposure outside cloud
  More Personal Computing revenue declined 3%, with Xbox content and services down 5%, which raises reliance on cloud and productivity for overall growth.
  ‍

Looking forward, the setup hinges on three measurable items: Azure capacity catching up with demand, conversion of the RPO backlog into revenue, and sustained ARPU lift inside Microsoft 365 from premium suites and Copilot.