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Microsoft Corp
subscription mature-market
Revenue
$282B
↑ 15% vs prior year
Gross margin
68.8%
→ from 69.8%
Net debt
$16B
↑ 45% vs prior year
Free cash flow
$72B
↓ 3% vs prior year
1975 2025
1975 Microsoft founded
1980 IBM PC deal
1985 Windows 1.0 released
1986 IPO on NASDAQ
1990 FTC investigation begins
2021 Cloud and AI growth accelerates
Wikipedia history · XBRL financial data

Microsoft makes money by charging people and businesses to use its software and cloud services — mostly through subscriptions they pay every month or year. The biggest pieces are Microsoft 365 (the Word, Excel, and Teams bundle), Azure cloud computing, LinkedIn, and Xbox Game Pass. Companies pay per user, per month. Developers pay for every hour they run code on Azure. Gamers pay a monthly fee for Xbox Game Pass. This mix of predictable, recurring payments from hundreds of millions of customers is the engine that drives everything else. The diagram below traces where the money goes.

How Microsoft Makes Money
flowchart TD A["Datacenters & AI Infrastructure"] -->|"powers at scale"| B["Azure Cloud Services\n$98.4B"] A -->|"powers at scale"| C["Microsoft 365, Dynamics,\nLinkedIn $87.8B"] D["Windows, Devices & Gaming\n$23.5B"] -->|"pulls users into subscriptions"| C B --> E["Total Revenue $281.7B\n68.8% gross margin"] C --> E D --> E E --> F["Free Cash Flow $71.6B\n45.6% op. margin"] F -->|"reinvested in datacenters & R&D"| A

Five years of financial data tell a consistent story: this business has been getting larger and more cash-generative every single year. Revenue grew from $168.1 billion in 2021 to $281.7 billion in 2025. That is 67% growth in four years. Operating cash flow — the cash the business actually produces before big spending decisions — grew from $76.7 billion to $136.2 billion over the same period. That is a lot of money coming in the door.

Microsoft Annual Revenue (2021–2025)
2021
$168.1B
2022
$198.3B
2023
$211.9B
2024
$245.1B
2025
$281.7B
Revenue in billions of US dollars. Source: XBRL financials.

Gross margin — the share of each dollar of revenue left after the direct cost of delivering the product — has stayed remarkably stable across all five years, hovering around 69%. That means the business has not had to sacrifice profitability to grow. Most companies get squeezed as they scale. Microsoft has not. Not yet, anyway. The big question hanging over the next few years is whether that holds as the company spends massively on AI infrastructure.

What is free cash flow?
Free cash flow is the money left over after a company pays for everything it needs to keep running and building — salaries, datacenters, equipment, and so on. It is the cash available to return to shareholders, pay down debt, or make acquisitions. A high and growing free cash flow is generally a sign that a business is healthy and self-funding.

Free cash flow tells a slightly more complicated story. It rose from $56.1 billion in 2021 to $65.1 billion in 2022, then dipped to $59.5 billion in 2023 as spending picked up. It recovered to $74.1 billion in 2024, then dipped again to $71.6 billion in 2025 — even as operating cash flow hit a record $136.2 billion. The gap between operating cash flow and free cash flow is widening fast, because Microsoft is spending enormous sums building datacenters and buying specialised computer chips for AI. Capital expenditure is consuming a growing share of the cash the business generates.

$136.2B
Operating cash flow in fiscal year 2025 — a record high, up from $76.7B in 2021

Net debt — the amount owed to lenders minus cash on hand — has fallen sharply over the period, from $52.0 billion in 2021 to $15.9 billion in 2025. Microsoft finished fiscal year 2025 with $94.6 billion in cash and short-term investments. The balance sheet is in very strong shape. That financial cushion matters because the company has committed to enormous future spending: over $397 billion in total contractual obligations, including datacenter construction, leases, and purchase commitments for chips and equipment.

2023
milestone
Activision Blizzard Acquisition and OpenAI Partnership Deepen
Microsoft completed its $69 billion acquisition of Activision Blizzard in October 2023, adding major game franchises to Xbox Game Pass and dramatically expanding its gaming business. At the same time, its long-term partnership with OpenAI — which gives Microsoft exclusive rights to run OpenAI's models on Azure — became the foundation of its entire AI product strategy, from Microsoft 365 Copilot to Azure AI services. These two moves reshaped what kind of company Microsoft is today.

The fastest-growing part of the business right now is Azure. Azure and other cloud services revenue grew 34% in fiscal year 2025, driven by demand for AI computing. Microsoft Cloud revenue — the combined measure across Azure, Microsoft 365 Commercial cloud, LinkedIn, and Dynamics 365 — reached $168.9 billion in fiscal year 2025, up 23% from the prior year. Intelligent Cloud, the segment that contains Azure, generated $106.3 billion in revenue in 2025, with operating income of $44.6 billion.

$168.9B
Microsoft Cloud revenue in fiscal year 2025, up 23% year-over-year

But that growth is not free. The cost of running the Intelligent Cloud segment rose 36% in fiscal year 2025 — faster than revenue growth of 21%. Microsoft is spending heavily today in hopes that the AI workloads will fill up those datacenters tomorrow. The gross margin on Microsoft Cloud fell slightly to 69%, driven by the cost of scaling AI infrastructure. If AI demand accelerates, those costs get absorbed and the margins recover. If demand disappoints, the spending looks like a very expensive mistake.

What is a transfer pricing dispute?
When a big company moves money between its offices in different countries, tax authorities want to make sure it is paying the right amount of tax in each place. The IRS says Microsoft shifted profits in a way that reduced its US tax bill. Microsoft disagrees. These disputes can take years to resolve and the amounts involved can be very large.

The most specific financial risk on record is the IRS dispute. The US tax authority says Microsoft owes an additional $28.9 billion in taxes, plus penalties and interest, related to how it moved money between its global offices for the years 2004 to 2013. Microsoft disagrees and says it will fight the claim. No final resolution is expected in the next 12 months. Separately, in late 2023 a government-backed hacker group broke into Microsoft's internal systems using a password spray attack, gaining access to employee email accounts and source code. Microsoft has acknowledged that stolen information could still be used to access its systems in the future. A business that sells trust and security having its own systems compromised is not a minor footnote — it is a direct threat to the company's reputation with enterprise customers.

$28.9B
Additional tax the IRS says Microsoft owes, plus penalties and interest — disputed by Microsoft

There are also regulatory risks specific to artificial intelligence. The European Union's AI Act imposes strict rules on how AI systems can be built and used. Microsoft offers AI products and services across Europe, and compliance could add significant costs or limit what it can offer there. The EU is one of Microsoft's largest markets. Meanwhile, the Activision Blizzard integration and the OpenAI partnership both carry execution risk. If either fails to deliver the financial benefits that justified the cost, Microsoft could face large accounting write-downs.

What is consumption-based revenue?
Some of Microsoft's revenue — especially from Azure — is not a fixed subscription. Customers pay for what they actually use, like a utility bill. This means revenue can grow very fast when demand is high, but it can also slow down quickly if customers cut back or find a cheaper alternative.
Microsoft 365 Consumer reached 89.0 million subscribers by the end of fiscal year 2025, growing 8% — but the company also raised prices in January 2025. Both things happened at the same time. Whether those subscribers stay as the price goes up further is worth watching.
The Bet
Microsoft is betting that Azure becomes the default infrastructure layer for artificial intelligence — that companies building or running AI applications will choose to do it on Azure, using OpenAI models and Microsoft tools, at a scale large enough to justify the hundreds of billions of dollars being spent on datacenters and chips right now. If that bet is right, the AI workloads fill up the infrastructure, margins recover, and the gap between operating cash flow and free cash flow closes as capital spending stabilises. If enterprises build on competing clouds, use open-source models instead of OpenAI's, or simply take longer than expected to commit, the infrastructure sits underutilised and the spending looks far too large for the returns it generates.
Open question
Microsoft is generating more cash than almost any business in history, has a rock-solid balance sheet, and is growing revenue at 15% per year at a scale most companies never reach. But it is also committing to contractual obligations of over $397 billion, its AI infrastructure costs are rising faster than the revenue they generate today, it faces a $28.9 billion tax dispute, and its own security systems were breached by nation-state hackers. Can Azure's AI business grow fast enough, and become profitable enough, to justify the infrastructure build — before the spending erodes the financial health that makes Microsoft so resilient today?
Compiled · 10-K · FY2025
Total Revenue (5-year)
2021
$168B
2022
$198B
2023
$212B
2024
$245B
2025
$282B
Revenue grew from $168B in 2021 to $282B in 2025, a 68% increase over 5 years.
XBRL · Total revenue · Segment breakdown not reported separately
Gross Margin Trend (5-year)
2021 2025
Gross margin moved from 68.9% (2021) to 68.8% (2025).
Operating Cash Flow (5-year)
2021
$77B
2022
$89B
2023
$88B
2024
$119B
2025
$136B
Cash Conversion
1.34×
At 1.34×, the company converts more than $1 of cash for every $1 it earns — a sign that reported earnings are backed by real cash coming in the door.
XBRL · 10-K Financial Statements · FY2025
FY2025
$16B
↓ 45% year over year
FY2024
$29B
Net debt fell 45% year over year — the company is paying down more than it's taking on.
XBRL · Balance Sheet · 10-K · FY2025

Executive compensation data not available.

DEF 14A · Proxy Statement
2026-03-06
Hogan Kathleen T
EVP, Strategy
Disc.
$5.05M
2026-02-18
STANTON JOHN W
Buy
$1.99M
2025-04-23
SMITH BRADFORD L
Vice Chair and President
Buy
$1.45M
2025-04-30
SMITH BRADFORD L
Vice Chair and President
Disc.
$0.01M
2025-05-05
SMITH BRADFORD L
Vice Chair and President
Disc.
$1.67M
2025-12-04
Numoto Takeshi
EVP, Chief Marketing Officer
Disc.
$1.36M
2025-12-02
Althoff Judson
CEO Microsoft Commercial
Disc.
$6.27M
2025-11-03
SMITH BRADFORD L
Vice Chair and President
Disc.
$15.77M
2025-11-03
SMITH BRADFORD L
Vice Chair and President
Disc.
$4.20M
2025-09-03
Nadella Satya
CEO
Disc.
$13.00M
2 purchases and 48 sales by insiders over the past two years.
Form 4 · SEC filings · Last 24 months
Vanguard Group
BlackRock
State Street
Fidelity (FMR LLC)
Geode Capital Management
T. Rowe Price
JPMorgan Asset Mgmt
Morgan Stanley
Vanguard Group is the largest institutional holder with 0.0% of shares outstanding.
13F filings
Regulatory - Tax
The U.S. Internal Revenue Service is challenging how Microsoft calculated taxes on money moved between its global offices. The IRS says Microsoft owes an additional $28.9 billion in taxes plus penalties and interest, and the outcome of this dispute could significantly impact Microsoft's financial results.
Cybersecurity - Nation-State Attack
In late 2023, a government-backed hacker group used a password spray attack to break into Microsoft's test account and gained access to internal email accounts and source code repositories. The attackers could continue using stolen information to access Microsoft systems in the future, damaging customer trust and the company's reputation.
Business Model - Cloud and AI Infrastructure Costs
Microsoft is spending enormous amounts of money to build datacenters and buy specialized computer chips for cloud and artificial intelligence services. If these massive investments don't generate enough revenue to match the spending, Microsoft's profitability will decline significantly.
Regulatory - EU AI Act
The European Union's new AI Act imposes strict rules on how artificial intelligence systems can be developed and used. These regulations could increase Microsoft's costs substantially or limit how the company offers AI products and services in Europe.
Business - Acquisition Integration Risk
Microsoft completed a major acquisition of Activision Blizzard in October 2023 and has a partnership with OpenAI. If Microsoft fails to successfully combine these businesses with its existing operations or if they don't produce the expected financial benefits, the company could take large accounting charges that hurt earnings.
10-K Item 1A · Risk Factors
Cash vs earnings
AR growth
Inventory
Share dilution
Debt trend
One-time charges
Goodwill
Customer conc.
Nothing flagged.
10-K · XBRL · Computed signals