MSFT · 10-K · 2026A · Full report
Gross Margin Drivers
MICROSOFT CORP · 2026-07-29 · Importance 66 · Surprise 40 · Matches filing data
Gross margin increased 16% to $225.465 billion in fiscal 2026 from $193.893 billion in fiscal 2025. Gross margin percentage decreased slightly because of continued investments in AI infrastructure and growing AI product usage, partly offset by Microsoft Cloud efficiency gains. Microsoft Cloud gross margin percentage decreased to 66%, while Productivity and Business Processes gross margin percentage increased slightly from Microsoft 365 Commercial cloud efficiency gains. Intelligent Cloud gross margin increased 21% to $79.915 billion, but its margin percentage declined because of AI infrastructure investment and the sales mix shift toward Azure.
Key facts
- Gross margin was $225,465 million in fiscal year 2026 compared with $193,893 million in fiscal year 2025, a 16% increase. source
- Cost of revenue increased $18.5 billion or 21% in fiscal year 2026 driven by growth in Microsoft Cloud. source
- Gross margin increased $31.6 billion or 16% in fiscal year 2026 with growth across each of our segments. source
- Microsoft Cloud gross margin percentage decreased to 66% in fiscal year 2026. source
Impact estimates
| metric | direction | stage | expected | basis |
|---|---|---|---|---|
| operating_income | negative | realized | -5.6% | Cost of revenue increased $18.5 billion or 21% in fiscal year 2026 driven by growth in Microsoft Cloud. |