Microsoft cloud earnings once again took center stage during the company’s latest quarterly results, answering a question many investors and customers had heading into the holiday period: where is Microsoft’s growth really coming from in 2026? The answer is clear. While gaming and hardware showed signs of slowing, cloud services, Windows upgrades, and enterprise demand helped drive solid revenue and profit gains across the business.

Microsoft Cloud Earnings Drive Overall Revenue Growth

Microsoft reported $81.3 billion in revenue for its fiscal second quarter, alongside net income of $30.9 billion. Revenue climbed 17 percent year over year, while profit jumped an even stronger 23 percent. These gains highlight how effectively the company has balanced consumer and enterprise businesses despite uneven performance in certain segments.

Cloud services played a major role in stabilizing results. Enterprise customers continued expanding their reliance on Microsoft’s cloud platforms, reinforcing long-term contracts and recurring revenue streams. This steady demand helped offset weaker growth elsewhere, keeping overall financial performance firmly in positive territory.

More Personal Computing Becomes the Weak Spot

Despite the strong headline numbers, not every business unit delivered growth. The More Personal Computing division was the only segment to post a year-over-year revenue decline during the quarter. This division includes Windows licensing, devices, and gaming hardware, all of which faced mixed conditions during the holiday season.

PC demand was stronger than expected, but not enough to fully lift the segment. Supply constraints and shifting consumer priorities limited upside, even as upgrade cycles accelerated. The result was a rare soft spot in an otherwise strong earnings report.

Windows Upgrades Boost OEM Revenue

One bright area within personal computing came from Windows licensing. Windows OEM revenue rose 5 percent year over year, signaling that businesses and consumers are actively upgrading their PCs. The approaching end of support for Windows 10 pushed many buyers to refresh aging systems sooner than planned.

Overall Windows OEM and devices revenue grew just 1 percent, however. That modest increase reflects declining hardware sales, particularly in Microsoft’s own device lineup. By combining Surface and Windows OEM revenue into a single reporting category, the company also reduced visibility into individual product performance.

Windows 11 Hits a Major User Milestone

Windows 11 reached a significant milestone during the quarter, surpassing one billion active users. According to Microsoft leadership, that figure represents a 45 percent increase compared to the same period last year. Adoption has accelerated faster than it did for Windows 10 at a similar stage in its lifecycle.

The milestone underscores how critical the Windows ecosystem remains to Microsoft’s broader strategy. A larger active user base strengthens opportunities for cloud services, subscriptions, and enterprise integrations. It also reassures partners that Windows continues to be a central platform despite competition from alternative operating systems.

Surface Hardware Takes a Back Seat

Microsoft did not introduce any new Surface devices during the quarter, following hardware launches earlier in the year. That absence likely contributed to weaker devices revenue, particularly during a period when consumers typically expect fresh hardware announcements.

Industry watchers now expect new Surface models to arrive later in the year, potentially timed around major software updates. Until then, hardware is likely to remain a secondary growth driver compared to cloud services and enterprise software.

Gaming Revenue Slows Amid Market Shifts

Gaming was another area under pressure. Console sales declined as the current generation of hardware matures, and consumers spread entertainment spending across multiple platforms. While Microsoft continues investing heavily in gaming services and content, short-term revenue growth remains challenging.

Subscription-based gaming and digital content continue to provide stability, but they were not enough to fully counter hardware softness. This trend reflects broader changes in how players engage with games, favoring long-term access over frequent console upgrades.

What Microsoft’s Q2 Results Signal for 2026

Taken together, the quarter paints a clear picture of Microsoft’s priorities. Cloud earnings remain the foundation of growth, supporting strong profits even when consumer-facing businesses face headwinds. Windows upgrades are providing a timely boost, while gaming and devices navigate slower cycles.

Looking ahead, Microsoft appears well-positioned to sustain momentum. Continued investment in cloud infrastructure, enterprise tools, and platform services gives the company resilience against market fluctuations. While gaming and hardware may fluctuate quarter to quarter, the underlying business remains anchored by predictable, high-margin cloud revenue.

For investors and customers alike, the message from this quarter is straightforward. Microsoft cloud earnings are not just strong—they are increasingly essential to the company’s ability to weather change and deliver consistent results in an evolving tech landscape.