Microsoft reported quarterly results showing gaming revenue of $7.11 billion, exceeding Windows revenue of $5.26 billion for the first time and making games the company’s third-largest revenue stream.
Quarterly performance and headline figures
The company posted revenue of $62 billion and net income of $21.9 billion for the latest quarter of last year. Revenue rose 18% year over year while net income increased 33%.
This was the first earnings report released after Microsoft reached a market valuation of $3 trillion.
How gaming overtook Windows
The surge in gaming revenue, up 49% versus the prior period, was driven largely by Microsoft’s acquisition of Activision Blizzard, the studio behind franchises such as Call of Duty, Overwatch and Diablo.
Despite the overall jump in gaming revenue, Xbox hardware sales increased only 3% in the quarter and the Xbox Game Pass subscription service did not record a significant number of new subscribers during the period, even with winter promotions in place.
Company revenue ranking by business area
- Games became Microsoft’s third-largest revenue source, with Windows moving to fourth.
- Office was the second-largest, generating $13.47 billion in the quarter.
- Server products and cloud services led all segments with $23.95 billion.
- Together, Office and cloud services accounted for nearly 60% of Microsoft’s total revenue.
- Microsoft has been selling Copilot for Microsoft 365 in recent months, but the company has not provided details on how AI add-on sales are affecting revenue.
- Microsoft’s investments in Azure OpenAI are expected to have the largest impact on the company’s AI ambitions.
AI strategy and partnerships
Over the past decade, CEO Satya Nadella has emphasized a partnership strategy with OpenAI. Microsoft is the startup’s largest partner and has invested about $13 billion in OpenAI over the last five years, receiving 49% of the profits.
That relationship gave Microsoft early access to OpenAI’s latest models, which are trained and hosted on Microsoft’s Azure cloud infrastructure.
Market participants are optimistic that deeper integration of these AI tools into core Microsoft products—such as Word, Outlook and Teams—will create a significant new revenue stream for the company.
The data and reporting cited in this article are based on information from The Verge and Microsoft’s published quarterly results.
