Microsoft reports strong cloud earnings, with Windows and Xbox up too
Like clockwork, cloud services are the strong point of Microsoft's revenue this quarter. Azure revenue grew 39 percent year-over-year, and Microsoft CEO Satya Nadella says 'Azure surpassed $75 billion in revenue' for the year, up 34 percent.
The PC market is still feeling the effects of the Trump tariffs and consumer spending, while businesses look to refresh PCs ahead of Windows 10's end of support in October. As a result, Windows OEM and devices revenue is up 3 percent year over year, driven by growth in Windows OEM revenue.
Gartner said earlier this month that PC shipments were up more than 4 percent in the recent quarter, thanks to a Windows 11 refresh cycle for desktop PCs. Microsoft primarily makes money from Windows through OEM revenue, the price that manufacturers pay to license Windows for laptops and PCs.
While this time last year Microsoft's Surface revenue had been in decline for two years, Microsoft started combining Windows and devices revenue together during this past financial year, so it's still not clear how Surface is performing.
Microsoft did launch two new Surface devices in the recent quarter, though: the 12-inch Surface Pro and 13-inch Surface Laptop. Both devices launched midway through the quarter, so the full impact of sales on Windows OEM and devices revenue won't be felt until 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. Overall gaming revenue at Microsoft is up 10 percent.
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.'
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