MSFT · 10-K · 2025A · Full report
Gross Margin Drivers
MICROSOFT CORP · 2025-07-30 · Importance 68 · Surprise 58
Gross margin increased $22,885 million or 13% to $193,893 million in fiscal 2025 driven by growth across each reportable segment. Cost of revenue rose $13,717 million or 19%, predominantly due to expansion of Microsoft Cloud capacity and higher cloud consumption. Microsoft Cloud gross margin percentage decreased to 69% in fiscal 2025, with the decline attributed to the impact of scaling AI infrastructure offset in part by efficiency gains in Azure. Intelligent Cloud cost of revenue increased $10,560 million (36%) while gross margin for Intelligent Cloud grew in dollars but declined in percentage due to AI infrastructure scaling.
Key facts
- Cost of revenue for the Intelligent Cloud segment increased $10,560 million or 36% year over year in fiscal year 2025, driven by growth in Azure.
- Consolidated cost of revenue increased $13.7 billion or 19% year over year in fiscal year 2025, driven by growth in Microsoft Cloud.
- Gross margin for fiscal year 2025 was $193,893 million, a 13% increase year over year.
- Microsoft Cloud gross margin percentage decreased to 69% in fiscal year 2025 due to scaling AI infrastructure, partially offset by Azure efficiency gains.
Impact estimates
| metric | direction | stage | expected | basis |
|---|---|---|---|---|
| margin | positive | realized | +7.9% | Gross margin for fiscal year 2025 was $193,893 million, a 13% increase year over year. |
| operating_income | negative | realized | -4.9% | Consolidated cost of revenue increased $13.7 billion or 19% year over year in fiscal year 2025, driven by growth in Microsoft Cloud. |
| operating_income | negative | realized | -3.8% | Cost of revenue for the Intelligent Cloud segment increased $10,560 million or 36% year over year in fiscal year 2025, driven by growth in… |
| margin | negative | realized | — | Microsoft Cloud gross margin percentage decreased to 69% in fiscal year 2025 due to scaling AI infrastructure, partially offset by Azure… |