Unsurprisingly, Microsoft’s cloud services continue to be a major contributor to its revenue this quarter. Azure experienced a 39 percent increase in revenue compared to the previous year, with CEO Satya Nadella noting that “Azure exceeded $75 billion in revenue” over the fiscal year, marking a 34 percent rise. These robust cloud earnings follow Microsoft’s recent layoffs of up to 9,000 employees earlier this month.

Windows and Surface revenue

The PC market remains influenced by the Trump tariffs and shifts in consumer spending, while businesses are updating PCs in anticipation of Windows 10’s end of support in October. Consequently, Windows OEM and devices revenue increased 3 percent year-over-year, driven by gains in Windows OEM revenue.

According to Gartner, PC shipments rose over 4 percent in the latest quarter, fueled by a Windows 11 upgrade cycle for desktops. Microsoft primarily profits from Windows through OEM revenue, which involves the fees manufacturers pay to license Windows for their computers.

Last year, Microsoft’s Surface revenue had been declining for two years, yet during this fiscal year, Microsoft began merging Windows and devices revenue reporting. As a result, the current performance of Surface remains unclear.

Microsoft introduced two new Surface devices in the most recent quarter: the 12-inch Surface Pro and the 13-inch Surface Laptop. These devices were released in the middle of the quarter, meaning their impact on Windows OEM and devices revenue will be more evident in the next quarter.

Xbox content and services revenue, which includes Xbox Game Pass, is up by 13 percent this quarter. Microsoft still isn’t revealing any new Game Pass subscriber numbers, though, and the last time we got an update was in February 2024, when Microsoft revealed there were 34 million subscribers, including Xbox Game Pass Core (previously Xbox Live Gold) members.

Microsoft has been aggressively pushing ahead with its strategy to bring more previously Xbox-exclusive games to PlayStation and Nintendo Switch over the past year. Senua’s Saga: Hellblade II is arriving on PS5 next month, alongside the original Gears of War as a remastered version. Microsoft also launched Forza Horizon 5 on PS5 earlier this year, as well as Age of Empires II: Definitive Edition, Age of Mythology: Retold, and Indiana Jones and the Great Circle.

While the move to bring more Xbox games to PlayStation might have angered some fans, it has proven to be a successful choice. Preorders for Indiana Jones and the Great Circle and Forza Horizon 5 topped Sony’s own PlayStation Store earlier this year, and Circana revealed this week that Microsoft had six of the 10 top-selling games on PlayStation in the recent quarter.

Xbox hardware is still struggling, though. Xbox hardware revenue is down 22 percent this quarter, despite a busy period for Game Pass. Microsoft increased the prices of its Xbox consoles and controllers worldwide in May, with the Xbox Series X bumped by $100 to $599.99.

Overall gaming revenue at Microsoft is up 10 percent year-over-year, and has increased by $2 billion for the entire fiscal year. Xbox content and services revenue has also increased by 16 percent for the fiscal year, but Xbox hardware revenue has decreased by 25 percent in the fiscal year “driven by lower volume of consoles sold.”

Microsoft’s Xbox everywhere strategy — which I’ve been covering closely in my Notepad newsletter over the past year — will also include titles for the Nintendo Switch 2. It’s possible we might even see one during Nintendo’s Switch 2 partner Direct tomorrow.

Looking ahead, Microsoft is also heading to the Gamescom show next month, where it will let attendees play with its new Xbox Ally handheld devices. A playable demo of the long-awaited Hollow Knight: Silksong will also be available on the ROG Xbox Ally handhelds, as well “a couple more surprises at the show from our partners too.”

Microsoft 365 commercial cloud revenue grew by 18 percent year-over-year, driven by growth in revenue per user and in part to Microsoft 365 Copilot licenses. The January price increase to Microsoft 365 consumer plans has also contributed to 20 percent of growth in Microsoft 365 Consumer cloud revenue. There are now 89 million Microsoft 365 consumer subscribers, up 8 percent year-over-year.

It’s Microsoft’s cloud growth that’s really the story this quarter once again. Azure and other cloud services grew by 39 percent, a big jump that was driven by growth across all workloads, according to Microsoft. Server products revenue declined 2 percent, a sign that Microsoft’s customers are increasingly moving to its cloud offerings.

LinkedIn revenue was also up 9 percent this quarter, with sessions also growing by 7 percent. Microsoft says it has also seen “record engagement” with LinkedIn this quarter. Even Microsoft’s search and news advertising revenue is up 21 percent, after it has overhauled Bing with AI-powered results and features.

Microsoft will now hold an earnings call at 5:30PM ET / 3:30PM PT, and we’ll update this article with any relevant comments.