Microsoft Cloud Revenue and Gross Margin

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This page covers Microsoft’s cloud revenue, consisting of sales generated from Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365.

In addition to the cloud revenue, we also look at Microsoft’s cloud gross margin percentage to explore the product profitability.

Let’s look at the cloud revenue and gross margin results!

For other statistics of Microsoft Corporation, you may find more information on this page: Microsoft key stats.

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Definitions

To help readers understand the content better, the following terms and glossaries have been provided.

Microsoft cloud revenue:

Microsoft cloud revenue consists of sales generated from Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365.

Microsoft cloud gross margin percentage measures the profitability of the Microsoft Cloud business.

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Insight & Summary of Microsoft’s Cloud Revenue and Gross Margin

Microsoft Cloud has grown from $9.5B to $214.4B over the decade (22.6x, about 37% a year) and now makes up 64.6% of revenue, up from 10.3%. In FY2026 it supplied 91% of the group’s revenue increase. Growth has re-accelerated while gross margin has fallen from its 72% peak to 66%.

• Growth: Normalisation, Then Re-acceleration at Scale Growth moved from 43–79% in FY2017–FY2019 to 32–36% in FY2020–FY2022, then settled at 22–23% in FY2023–FY2025. FY2026 rose to 26.9% on a $169B base. Cloud added $45.5B in FY2026, against $31.2B and $26.1B in the two prior years. Cloud’s growth premium over the group has narrowed from 50 points or more in the early years to 8–9 points. That reflects how much of the group cloud now is, not a loss of momentum.

• Group Dependence: Non-Cloud Is a Mid-Single-Digit Grower Since FY2024, cloud has delivered 79–91% of incremental revenue each year. Non-cloud revenue ($117.4B) grew 7.1%, 5.0% and 4.1% over FY2024–FY2026, after falling 6.2% in the FY2023 slowdown. The group’s acceleration to 17.8% therefore comes from cloud, while the rest of the business is slowing gradually. Cloud’s share has been gaining 3.5–4.6 points a year.

• Gross Margin: Ramp, Plateau, Compression Margin rose from 50% to 71–72% as the business scaled. It held at 72% in FY2023–FY2024, then fell 3 points in each of the last two years to 66%, now below its FY2020 level (67%). FY2026 is the first year in which growth accelerated materially (+4.2 points) while margin compressed.

• Profit Dollars: Volume Still Outruns Dilution, but Marginal Returns Are Lower Implied cloud gross profit (revenue times margin, using rounded margins) still rose about 21% in FY2026, to roughly $142B. The new revenue is coming in at a much lower margin than the base. The implied incremental margin was about 55% in both FY2025 and FY2026, against 72% in FY2024 and 67–83% in earlier years. Allowing for the rounding in reported margins, the range is roughly 51–59%. The dataset doesn’t identify the cause, but the pattern fits the cost of scaling infrastructure capacity.

• Structural Takeaway: Structurally, Microsoft is a cloud business with a mature franchise attached, with cloud at nearly two-thirds of revenue and about 90% of growth. Earnings quality now depends more on cloud margin than on cloud growth.

  The trend is changing from scale-driven margin expansion to investment-led growth. If cloud grows about 25% a year with new revenue at a 55% margin, and non-cloud grows about 4.5%, the blended margin drifts to roughly 64% in FY2027 and 62% in FY2028. Cloud’s share of revenue would reach about 69% in FY2027 and 72% in FY2028. The margin stabilises only when new revenue earns about the current blended rate (roughly 66%). Incremental margin recovering toward that level is the key signal to watch. If it stays in the mid-50s, the compression continues even at 25% growth.

The table below combines all key Microsoft’s cloud revenue and gross margin metrics into a single view for the latest three fiscal years.

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Cloud revenue vs total revenue

The definition of Microsoft cloud revenue and gross margin is available here: cloud revenue.

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Cloud gross margin and revenue YoY growth rates

The definition of Microsoft cloud revenue and gross margin is available here: cloud revenue.

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Credits And References

1. All data presented in this article were obtained and referenced from Microsoft’s quarterly and annual reports published on the company’s investor relations: Microsoft investor relations.

2. Pexels Images.

Disclosure

We may use artificial intelligence (AI) tools to assist us in writing some of the text in this article. However, the data is directly obtained from original sources (usually the quarterly and annual reports) and meticulously cross-checked by our editors multiple times to ensure its accuracy and reliability.

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