Microsoft Corporation (MSFT) Business Profile

What it does

Microsoft is a technology company that sells software, cloud services, devices and digital content to organizations and individuals. It is headquartered in Redmond and led by Chairman and Chief Executive Officer Satya Nadella.

Its Azure cloud lets customers rent computing, storage and networking capacity and build or run applications and AI systems without managing all their own hardware. Azure AI Foundry gives developers tools to design, customize and manage AI applications and agents: software that can carry out tasks. Microsoft also offers server software for customers that run systems on their own premises.

For everyday work, Microsoft 365 combines Office applications, communications tools, security and Copilot AI features. Dynamics provides applications for functions such as financial management, customer relationships and supply chains. LinkedIn connects professionals and sells services for hiring, marketing and sales.

Microsoft also sells the Windows operating system and Surface devices. Its Xbox business offers consoles, games, subscriptions and cloud gaming, while Bing and other services carry search and display advertising. The company sells directly to organizations and through partners, device manufacturers and online channels. Its customers range from large enterprises and public-sector bodies to small businesses, developers and consumers.

How it makes money

Microsoft earns revenue from cloud consumption, software subscriptions and licenses, services, advertising, devices and gaming content.

For FY2026, the company reported three segments. Productivity and Business Processes, with $140.0 billion in revenue, included Microsoft 365, LinkedIn and Dynamics. Intelligent Cloud, with $137.8 billion, included Azure, server products, GitHub and enterprise services. More Personal Computing, with $54.1 billion, included Windows and devices, Xbox and search advertising. Microsoft changed its segment structure for FY2027, reporting Agents and Infra alongside Devices and Consumer.

Microsoft 365 Commercial revenue depends on the number of users and average revenue per user. Customers can subscribe to cloud services or license some software for use on their own premises. Dynamics revenue depends on users licensed and applications consumed. LinkedIn earns money from subscriptions for hiring, sales and professional users, as well as marketing solutions.

Azure revenue is affected mainly by customers’ consumption of infrastructure and platform services. Server products also generate license revenue, including through volume programs and device manufacturers. Microsoft is adding usage-based charges alongside per-seat Copilot subscriptions, including credits for AI features.

In gaming, subscriptions and sales of first- and third-party content, as well as advertising, affect Xbox revenue. Microsoft also earns advertising revenue through search and sells hardware, including Surface devices and Xbox consoles. Its recurring business includes subscriptions and ongoing cloud usage, while licenses, devices and some content are purchased in transactions.

Customers and how it sells

Microsoft serves large multinational enterprises, government and other public-sector organizations, small and medium-sized businesses, developers and individual consumers. Businesses use Azure for applications and computing capacity, Microsoft 365 for work and collaboration, and Dynamics for business processes. Consumers use products ranging from Windows and Microsoft 365 to Xbox and search.

In FY2026, the United States accounted for $170.8 billion, or 51.5%, of revenue. Other countries accounted for $161.0 billion, or 48.5%. Microsoft operates datacenters across the Americas, Asia Pacific, Europe and the Middle East.

Direct sales reach organizations of different sizes. An indirect network of partners helps sell, deploy and manage products and services worldwide; device manufacturers also license and preinstall Microsoft software. Customers can purchase certain offerings online or through digital marketplaces.

Microsoft said Volkswagen had announced plans to deploy Copilot to more than 330,000 employees. It also said the number of customers with large Copilot deployments increased year-over-year in Q1 FY2027, naming customers including Capgemini, HCLTech and Hitachi Group. These examples identify deployments and customers, rather than their shares of Microsoft’s revenue.

Suppliers and costs

Microsoft’s significant expenses include employee compensation, cloud services and datacenter operations, the design and sale of other products, and income taxes. It develops most products and services internally, while third-party manufacturers produce its devices.

Datacenter expansion depends on buildable land, energy, networking supplies and servers, including graphics processing units and other components. Microsoft says some server and device components have few qualified suppliers. For most products, it can use alternative manufacturers if an existing vendor cannot meet its requirements.

Microsoft uses chips from NVIDIA and AMD alongside its own Maia systems. In Q1 FY2027, capital expenditures were $45.2 billion, with some expected third-party capacity deliveries delayed. Much of that spending was for short-lived assets, primarily CPUs and GPUs, including higher memory and storage costs; the remainder was for long-lived assets.

The company says cloud and AI infrastructure investment will continue to increase operating costs and may decrease operating margins. In FY2026, Microsoft Cloud gross margin percentage declined, with continued AI infrastructure investment and growing AI product usage partly offset by efficiency gains in Azure and Microsoft 365 Commercial cloud.

Competitive position

Microsoft competes across cloud infrastructure, business software, security, operating systems, gaming and advertising. Azure faces other cloud providers and open-source offerings. It was reported on 28 October 2026 that AWS remained competitive as Microsoft Azure grew faster. Microsoft’s AI offerings also face products from large cloud providers, emerging competitors and open-source alternatives, some of which are also partners.

Office competes with software vendors, web and mobile applications, AI-first applications and local developers. Dynamics competes with cloud and on-premises business software providers. Defender and Azure security products face endpoint, cybersecurity and cloud-security providers. Windows competes with other software platforms and devices, while Xbox competes with online gaming ecosystems, streaming services and other console platforms.

Microsoft emphasizes integration across its cloud and applications, hybrid deployment across customer datacenters and its public cloud, and compatibility with existing technology. It also says its datacenters benefit from scale and the ability to share computing resources across customers and applications.

Our reading: Integration across workplace software, cloud infrastructure and security is a meaningful source of customer retention because organizations can use connected tools across several workloads. Our reading: Datacenter scale can support cost efficiency, but it requires continued investment and does not remove competition from other cloud providers. Our reading: The Windows and Xbox ecosystems can benefit from established applications, content and users, although customers have alternative platforms.

Growth opportunities

Microsoft is investing in cloud capacity, AI infrastructure and product development, while adding AI features to workplace software, developer tools and business applications. In FY2026, Azure and other cloud services revenue and Microsoft 365 Commercial cloud revenue increased. Microsoft 365 Commercial seats grew, driven by small and medium businesses and frontline worker offerings.

Microsoft’s growth plans include reaching more users and increasing revenue per user with AI tools and features. In Q1 FY2027, Azure revenue increased, and Microsoft said Foundry revenue grew year-over-year. Microsoft Cloud revenue also grew year-over-year.

The company is expanding Copilot beyond per-seat subscriptions to include usage-based billing. It said the number of Copilot customers actively consuming credits through usage-based billing grew during Q1 FY2027. It also reported customers for Foundry and for Fabric, its data and analytics offering.

Microsoft said customer demand for cloud capacity continues to exceed available supply. It expects Azure revenue to grow in Q2 FY2027, with infrastructure efficiency gains helping offset some delayed third-party GPU capacity. The company also expects capital spending to increase in Q2. These are company expectations, not results.

Structural risks

• Competition and changing business models: Microsoft faces competition across its markets from diversified global companies and specialized firms. Demand for cloud and AI products is evolving and difficult to forecast, and investments in products and services may not achieve expected returns.

• Capacity and supply: Microsoft may be unable to develop and expand adequate infrastructure. Datacenters need land, energy, networking supplies and servers, while some components have few qualified suppliers. Disruptions can affect datacenter operations and device production.

• Cybersecurity and platform abuse: Cyberattacks and vulnerabilities could reduce revenue, increase costs, create liability or harm Microsoft’s reputation. Content or advertising influenced by third parties can also harm reputation or user engagement.

• Investment and margins: Cloud and AI infrastructure investment will continue to increase operating costs and may decrease operating margins. Microsoft says the timing of engineering efficiencies, capacity deliveries and changes in model mix can cause quarterly Azure growth variability.

• Regulation and international operations: Microsoft is subject to evolving requirements covering areas such as privacy, data protection, advertising and online content. Foreign exchange movements can affect revenue and expenses, while trade restrictions and tariffs can add supply-chain challenges and cost volatility.

Bottom line

Our reading

Microsoft combines subscription software, consumption-based cloud services and consumer businesses, with its products connected across workplace applications, infrastructure and AI. Its growth depends in part on converting demand for those services into revenue while adding capacity; the same infrastructure investment can put pressure on costs and margins. Competition, security and the availability of computing resources remain material exposures.