Microsoft Q3 2026 Earnings: AI run rate hits $37B as OpenAI partnership solidifies

Microsoft today announced its earnings results for the third quarter of its 2026 fiscal year, reporting strong growth across revenue, operating income, net income, and earnings per share.

For the quarter ended March 31, 2026, Microsoft reported revenue of $82.9 billion, up 18% year-over-year. Operating income was $38.4 billion, up 20%, while net income reached $31.8 billion, up 23% on a GAAP basis. Diluted earnings per share were $4.27, up 23% on a GAAP basis.

Microsoft Chairman and CEO Satya Nadella said the company is focused on delivering cloud and AI infrastructure for the “agentic computing era.” He also revealed that Microsoft’s AI business has now surpassed an annual revenue run rate of $37 billion, up 123% year-over-year. Microsoft CFO Amy Hood noted the company delivered results above expectations across revenue, operating income, and earnings per share, driven by strong execution and continued demand for Microsoft Cloud.

As expected, Microsoft Cloud was once again the major growth driver for the company. Microsoft Cloud revenue reached $54.5 billion, up 29% year-over-year. Commercial remaining performance obligation also increased sharply, rising 99% to $627 billion.

In the Productivity and Business Processes segment, revenue was $35.0 billion, up 17%. Microsoft 365 Commercial cloud revenue increased 19%, while Microsoft 365 Consumer cloud revenue grew 33%. LinkedIn revenue increased 12%, and Dynamics 365 revenue was up 22%.

Microsoft’s Intelligent Cloud segment delivered revenue of $34.7 billion, up 30%. Azure and other cloud services revenue grew 40% (39% in constant currency), reflecting continued demand for cloud infrastructure and AI workloads.

The More Personal Computing segment was the only major business area to decline as revenue decreased to $13.2 billion, down 1% year-over-year. Windows OEM and Devices revenue declined 2%, while Xbox content and services revenue fell 5%. Search advertising revenue, excluding traffic acquisition costs, increased 12%.

During the earnings call, Satya Nadella addressed the amended partnership with OpenAI, which has sparked significant discussion among investors over the past few days:

"I’m always very, very focused on any partnership and ensuring that there’s a win-win construct at all times. I mean, that’s how you can remain good partners.

In this case, it starts with, quite frankly, IP. Amy referenced this. We have a frontier model, royalty-free, with all the IP rights that we will have access to all the way to ‘32, and we fully plan to exploit it. And there are examples I talked about even in my remarks earlier. And we’re thankful for that, and that’s one part of the agreement.

The second part, of course, is them as a customer of ours. They’re a large customer of ours, not just on the AI accelerator side, but also on all the other compute side. We want to serve them well. And then, of course, we have our equity."

Microsoft also returned $10.2 billion to shareholders through dividends and share repurchases during the quarter.