Microsoft Reports AI Growth Amid Xbox Revenue Decline

During its fiscal Q3 2026 earnings report, Microsoft announced total revenue of $82.89 billion, an 18% year-over-year increase. Growth was led by the Azure cloud platform, which grew 40%, and an AI business that reached an annual revenue run rate of $37 billion. The company also reported that M365 Copilot users grew to 20 million.

To sustain this momentum, Microsoft pledged a record $190 billion in capital expenditure for 2026 to fund data centers and AI chips. This spending, which far exceeded analyst expectations, contributed to a 5% dip in stock price as investors questioned near-term returns. To offset these costs, the company launched its first large-scale voluntary redundancy scheme, offering buyouts to over 8,700 U.S. employees. Simultaneously, Microsoft overhauled its partnership with OpenAI, relinquishing exclusive commercial rights to allow OpenAI to work with other providers while securing a 20% revenue share through 2030.

Conversely, the More Personal Computing division struggled. Overall gaming revenue fell 7% to $5.34 billion, highlighted by a 33% collapse in Xbox hardware sales. While Xbox achieved record monthly active users and streaming hours, content and services revenue declined by 5%. New Xbox CEO Asha Sharma acknowledged that growth has not met ambitions, prompting a brand reset focused on affordability and a return to core fans.