Microsoft
What it does
Microsoft reports 3 businesses. In FY2026, productivity and business brought in 42%, intelligent cloud brought in 42% and personal computing brought in 16% of revenue.
By region, United States made up 51%, then Other countries at 49%.
From Microsoft Corporation (SEC EDGAR), Form 10-K for the fiscal year ended 30 Jun 2026.
Our coverage
Read it through a lens
How it makes money
Where Microsoft's FY2026 revenue came from, what it cost to earn, and what was left for shareholders.
- Income
- Costs and tax
- Profit
- % = share of revenue
Source: Microsoft Corporation (SEC EDGAR), Form 10-K for the fiscal year ended 30 Jun 2026 (29 Jul 2026), income statement, Note 18. FY2026 is the year to 30 Jun 2026. Figures as reported, in US$ millions in the tooltips and table.
Technical: gross margin was 67.9%, operating margin 46.8% and net margin 40.3%. Operating costs and cost of revenue together took 53.2% of revenue.
Plain: of every dollar of sales, about 32 cents paid for making or delivering what was sold, about 21 cents went on running and growing the business, and about 40 cents ended up as profit for shareholders.
Revenue by product
Revenue by business
Revenue by region
See the numbers
| FY2026 | US$M | % of revenue |
|---|---|---|
| Revenue | 331,839 | 100.0% |
| Cost of revenue | −106,374 | 32.1% |
| Gross profit | 225,465 | 67.9% |
| Research and development | −35,562 | 10.7% |
| Sales and marketing | −26,710 | 8.0% |
| General and administrative | −7,956 | 2.4% |
| Operating income | 155,237 | 46.8% |
| Other income (expense), net | 10,697 | 3.2% |
| Profit before tax | 165,934 | 50.0% |
| Income tax | −32,185 | 9.7% |
| Net profit to shareholders | 133,749 | 40.3% |
- Other income of US$10,697M includes US$6.5B of net gains from Microsoft's investments in OpenAI, mainly a dilution gain from OpenAI's recapitalisation, Microsoft says.
- Microsoft Cloud revenue, which spans several of these lines, was US$214.4B.
- Revenue by region follows the customer's location, as Microsoft reports it.
Moat rating
Wide moat
9.1 / 10
ROIC averaged 63.4% over FY2022 to FY2026, 54.1 percentage points above a 9.34% cost of capital, and beat it every year. It has fallen as invested capital more than quadrupled, from US$69.8B to US$292.1B, but remains far above the hurdle.
Microsoft earns several times what its capital costs. The gap is narrowing as the money tied up in the business grows faster than profit, which is worth watching.
The numbers
10.0 / 10Return on invested capital against cost of capital, system and application software
- Average ROIC
- 63.4%
- Average excess return
- +54.1 pp
- Years above the hurdle
- 5 of 5
Spread 10 × 60% + durability 10 × 40% = 10.0
The sources
8.2 / 10Where Microsoft's advantage comes from
- 1. Brand and pricing power8 / 10
Gross margin of 67.9% and operating margin of 46.8% in FY2026.
Microsoft keeps nearly half of every sales dollar as operating profit, which only a business with pricing power can do.
- 2. Barriers to entry8 / 10
Microsoft Cloud revenue reached US$214.4B in FY2026 and Azure and other cloud services grew 41%. Research and development was US$35.6B.
Running a global cloud takes data centres, chips and engineers on a scale only a handful of companies can pay for.
- 3. Switching costs9 / 10
Productivity and Business Processes, home to Microsoft 365, LinkedIn and Dynamics, earned US$83.9B of operating income on US$140.0B of revenue, a 60% margin.
Companies run on Office, Teams and Windows. Retraining staff and moving years of files elsewhere is costly.
- 4. Network effects7 / 10
Office file formats, Teams and LinkedIn become more useful as more colleagues, partners and recruiters use them.
Everyone sends Word and Excel files because everyone else can open them.
- 5. Economies of scale9 / 10
Revenue of US$331.8B in FY2026. Intelligent Cloud earned a 41% operating margin on US$137.8B of revenue.
Microsoft can spread the cost of its software and data centres over hundreds of millions of users.
Return on invested capital: Microsoft Corporation (SEC EDGAR), Form 10-K for the fiscal year ended 30 Jun 2022; Microsoft Corporation (SEC EDGAR), Form 10-K for the fiscal year ended 30 Jun 2023; Microsoft Corporation (SEC EDGAR), Form 10-K for the fiscal year ended 30 Jun 2024; Microsoft Corporation (SEC EDGAR), Form 10-K for the fiscal year ended 30 Jun 2025; Microsoft Corporation (SEC EDGAR), Form 10-K for the fiscal year ended 30 Jun 2026. Hurdle: Aswath Damodaran, NYU Stern, Cost of capital by sector (US), data as of January 2026.
How we worked out ROIC: operating income after tax, divided by the capital invested at the start of the year. Tax is at the year's effective rate, or the 21% US federal rate where a pre-tax loss or a tax credit makes the effective rate meaningless. Invested capital is shareholders' equity plus borrowings, less cash and short-term investments, from the opening balance sheet in the same 10-K; lease liabilities are left out. This follows Damodaran's definition. The ratios are our calculation from the filed figures, not numbers the company reports.
Lens scores are rasinbunlover's judgment, reviewed 19 Oct 2026. A wide moat is a reason to dig deeper, not a verdict on the price. For education only. Not financial advice.
How we rate moats ›Value Microsoft with dbot
dbot has Microsoft's latest figures (TTM to Jun 2026 (=FY26)). It gives a value per share from Damodaran's methods and shows what today's price assumes. Every input can be changed.
Open Microsoft in dbot ›Price data: TradingView, may be delayed according to exchange rules. A ticker on this site is not a recommendation. For education only. Not financial advice.