Financial Trends -- 8/10
Near-textbook financial-strength profile. Revenue re-accelerating (+18.3% YoY in FQ3'26) led by
Intelligent Cloud (+29.6%) and Azure (+39% cc). GAAP operating margin expanding ~350-400bps over the
cycle with operating income compounding faster than revenue -- genuine operating leverage. Share count
declining, total debt falling. The single blemish: free cash flow is positive every quarter but not
growing -- down YoY in 2 of the last 3 quarters, FCF margin compressed from ~30% to 19% as the AI capex
build ramped quarterly capex to >$30B. Deliberate, demand-backed reinvestment, not earnings-quality
deterioration. No penalty modifiers.
Weight: 25%
Operating Margin
46.3%
+60bps YoY | Expanding
FCF
Compressing
Positive but not growing | Capex drag
Share Count
Declining
Buyback-driven | No dilution
Quarterly Revenue Trajectory ($M)
Revenue re-accelerating to +18.3% YoY, 500bps above the year-ago comp.
Growth decelerated through mid-FY25 (Office/MPC drag) then re-accelerated to the top of the range,
driven by Intelligent Cloud (+29.6% YoY) and Azure (+39% cc, sustained). The highest-quality segment
is doing the heavy lifting.
Operating Income & Margin ($M)
Operating income compounding faster than revenue -- genuine operating leverage.
Operating income YoY (+20-24%) runs ahead of revenue YoY (+16-18%). GAAP operating margin at 46.3%
(+60bps YoY at the quarter level; ~+350-400bps over the cycle). Commercial-cloud gross margin is
grinding down (72% to 66%) as AI/Azure infrastructure mix scales, but total-company operating margin
still expands.
Annual Financial Summary (FY ends June 30)
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Total Revenue ($M) | $168,088M | $198,270M | $211,915M | $245,122M | $281,724M |
| Rev YoY | — | +18.0% | +6.9% | +15.7% | +14.9% |
| Operating Income ($M) | $69,916M | $83,383M | $88,523M | $109,433M | $128,528M |
| Operating Margin | 41.6% | 42.1% | 41.8% | 44.6% | 45.6% |
| Commercial Cloud Rev ($B) | $69.1B | $91.2B | $111.6B | $137.4B | $168.9B |
| Diluted EPS ($) | $8.05 | $9.65 | $9.68 | $11.80 | $13.64 |
| Diluted Shares (M) | 7,608 | 7,540 | 7,472 | 7,469 | 7,465 |
| Total Debt ($M) | $58,146M | $49,781M | $47,237M | $44,937M | $43,151M |
Key trends
- Revenue compounding mid-teens: From $168.1B (FY21) to $281.7B (FY25), re-accelerated post-FY23 and running +18.3% YoY in the latest quarter on Intelligent Cloud and Azure
- Operating margin expanding ~400bps: 41.6% (FY21) to 45.6% (FY25); operating income compounding faster than revenue
- Commercial cloud ~25% CAGR: $69.1B (FY21) to $168.9B (FY25), the engine of the model
- Share count declining: Diluted shares fell 7,608M to 7,465M (-1.9%), buyback-driven with no dilution; total debt fell every year ($58.1B to $43.2B)
Segment Revenue ($M, quarterly, last 5 quarters)
| Segment | FQ3'25 | FQ4'25 | FQ1'26 | FQ2'26 | FQ3'26 | YoY (FQ3) |
|---|---|---|---|---|---|---|
| Productivity & Business Processes | $29,944M | $33,112M | $33,020M | $34,116M | $35,013M | +16.9% |
| Intelligent Cloud | $26,751M | $29,878M | $30,897M | $32,907M | $34,681M | +29.6% |
| More Personal Computing | $13,371M | $13,451M | $13,756M | $14,250M | $13,192M | -1.3% |
| Microsoft Cloud ($B) | $42.4B | $46.7B | $49.1B | $51.5B | $54.5B | +28.5% |
| Azure Growth (cc) | 35% | 39% | 39% | 38% | 39% | Stable-high |
Intelligent Cloud (+29.6% YoY) and Productivity (+16.9%) -- ~84% of revenue -- are both accelerating.
Microsoft Cloud reached $54.5B (+28.5%), Azure held +39% cc. The only laggard is More Personal
Computing (-1.3%), a mature/declining PC and console mix that is not a primary theme.
Free Cash Flow ($M) -- The One Blemish
| Metric | FQ4'24 | FQ1'25 | FQ2'25 | FQ3'25 | FQ4'25 | FQ1'26 | FQ2'26 | FQ3'26 |
|---|---|---|---|---|---|---|---|---|
| Free Cash Flow | $23,322M | $19,257M | $6,487M | $20,299M | $25,568M | $25,663M | $5,882M | $15,803M |
| FCF YoY | — | -6.8% | -28.9% | -3.2% | +9.6% | +33.3% | -9.3% | -22.1% |
| FCF Margin | 36.0% | 29.4% | 9.3% | 29.0% | 33.4% | 33.0% | 7.2% | 19.1% |
FCF positive every quarter, but not durably growing -- the single reason this is not a perfect score.
FCF fell YoY in 2 of the last 3 quarters (FQ2'26 -9.3%, FQ3'26 -22.1%) and FCF margin compressed from
~30% to 19.1% as the AI capex build ramped quarterly capex to >$30B. This is a deliberate,
demand-backed, self-funded reinvestment rather than earnings-quality deterioration -- but the rubric
rewards accelerating FCF, which Microsoft does not currently show. (FQ3'25/FQ4'24 FCF from the local
Non-GAAP reconciliation; no separate Daloopa citation for those periods.)
Share Count & Debt
- Share count declining: 7,472M to 7,445M over the window (7,608M to 7,465M FY21-FY25), buyback-driven, no dilution
- Debt declining: total debt fell to $40.3B, shrinking while revenue grows -- no debt-growth penalty
Penalty Modifier Check -- None Triggered
| Modifier | Detail | Penalty |
|---|---|---|
| Negative FCF | FCF positive every quarter (compressing, but not negative) | None |
| Share Dilution >10% | Share count declining (7,608M to 7,465M) | None |
| Revenue Up / OI Down | Operating income growing faster than revenue (+20-24% vs +16-18%) | None |
| Debt Growing > Revenue 3+ Qtrs | Debt declining while revenue grows | None |
Score Rationale
Score of 8/10 reflects a near-textbook high-quality mega-cap profile. Net of zero penalty modifiers.
Supports 8/10:
- Revenue re-accelerating to +18.3% YoY, led by Intelligent Cloud (+29.6%) and Azure (+39% cc)
- GAAP operating margin expanding ~350-400bps over the cycle (FY22 42.1% to FY25 45.6%), operating income compounding faster than revenue
- Three of four rubric pillars for a 10 cleanly met: accelerating revenue, +100bps margin expansion, declining shares
- Commercial cloud compounding ~25% ($69.1B to $168.9B); total debt falling every year
- Share count declining (7,608M to 7,465M), buyback-driven, no dilution
The one blemish (keeps it off a perfect score):
- FCF positive every quarter but not growing -- down YoY in 2 of the last 3 quarters, FCF margin compressed from ~30% to 19.1% as the AI capex build (capex up ~2.5x to >$30B/qtr) absorbs operating cash
- Deliberate, demand-backed, self-funded reinvestment -- not earnings-quality deterioration -- but the rubric rewards accelerating FCF, which MSFT does not currently show
Data sourced from Daloopa (company_id 135). Fiscal year ends June 30. Fiscal quarter labels; calendar mapping: FQ3'26 = cal 2026Q1. All financials in USD.