MSFT · 10-Q · 2026Q1 · Full report

Gross Margin Drivers

MICROSOFT CORP · 2026-04-29 · Importance 54 · Surprise 40 · In source text

Gross margin increased $7.9 billion or 16% for the three months ended March 31, 2026 to $56,058 million driven by growth across all segments. Gross margin percentage decreased overall, which the company attributes primarily to continued investments in AI infrastructure and growing AI product usage, partially offset by efficiency gains in Microsoft Cloud. Microsoft Cloud gross margin percentage declined to 66% in the quarter, reflecting heavier infrastructure and compute costs from AI workloads despite Azure and Microsoft 365 efficiency gains. Segment-level gross margin expansion was still positive in absolute dollars because revenue growth outpaced incremental AI-related costs.

Key facts

• Gross margin for the three months ended March 31, 2026 was $56,058 million, up 16% from $48,147 million a year earlier. source
• Microsoft Cloud gross margin percentage decreased to 66% for the three months ended March 31, 2026. source
• Microsoft Cloud gross margin percentage decreased to 67% for the nine months ended March 31, 2026. source
• Gross margin percentage decreased driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains across the Microsoft Cloud for both the three and nine months ended March 31, 2026. source
• The amortization of these costs is included in cost of revenue over the estimated life of the products. source

Impact estimates