Microsoft

“Differences in device market demand between developed markets and growth markets. • Growth of the AI PC category. • Attachment of Windows to devices shipped. • Customer mix between consumer, small and medium businesses, and large enterprises. • Changes in inventory levels in the OEM channel. • Pricing changes and promotions, pricing variation that occurs when the mix of devices manufactured shifts from local and regional system builders to large multinational OEMs, and different pricing of Windows versions licensed. • Constraints in the supply chain of device components. • Piracy.”

Annual report 2026A · The company itself

“The markets for cloud-based and AI products and services are highly dynamic, characterized by shifting customer expectations, increasing regulatory and governmental scrutiny, intense competition, and rapid technological change, such as the accelerating importance of agentic computing.”

Annual report 2026A · The company itself

“Threat actors also utilize emerging technologies such as AI and machine learning to, among other things, increase the speed and scale of attacks by generating and refining malicious content and code, automate reconnaissance and targeting, accelerate their ability to detect or exploit vulnerabilities, and rapidly iterate on attack techniques, which can broaden the scope, intensity, and sophistication of campaigns and reduce the time we have to identify and mitigate emerging threats.”

Annual report 2026A · The company itself

“Increasing use of AI, including models, algorithms, copilots, and autonomous or semi-autonomous agents, in our internal or third-party systems may create new attack surfaces or methods for adversaries. Our business policies and internal security controls may not keep pace with emerging threats or the evolving regulatory landscape.”

Annual report 2026A · The company itself

“For example, code generated by AI could include errors, deficiencies, or vulnerabilities that increase our exposure to cyberattacks.”

Annual report 2026A · The company itself

“Further, the rapid evolution of AI technologies and use cases may outpace the development, deployment, and effectiveness of security products, controls, and industry standards, particularly in complex customer environments, increasing the risk that security measures will be insufficient to address newly emerging threats.”

Annual report 2026A · The company itself

“Limitations on our ability to prevent third parties from scraping or gathering information or content through use of bots or other measures and using it for their own benefit due to, among other things, changes in the law, interpretations of law, or increasing use of agentic AI, could adversely affect our business, financial condition, and results of operations.”

Annual report 2026A · The company itself

“This activity may come from users impersonating other people or organizations, including through the use of AI technologies, dissemination of information that may be viewed as misleading or intended to manipulate the opinions of our users, or the use of our products or services that violates our terms of service or otherwise for objectionable or illegal ends.”

Annual report 2026A · The company itself

“Human review of certain inputs and outputs or other forms of human oversight may be required, including for agentic AI systems that can take actions autonomously.”

Annual report 2026A · The company itself

“Companion or highly-personalized AI systems may result in over-reliance or dependence by users that is harmful.”

Annual report 2026A · The company itself

“These claims may arise from a wide variety of business practices and initiatives, including major new product releases, AI products and services, significant business transactions, warranty or product claims, employment practices, and regulation.”

Annual report 2026A · The company itself

“From time to time, others claim we infringe their intellectual property rights, including current copyright infringement and other claims arising from AI training, inference, and output.”

Annual report 2026A · The company itself

“Our competitors are developing new software and devices, while also deploying competing cloud-based services for consumers and businesses.”

Annual report 2026A · The company itself

“Gross margin percentage decreased driven by the continued investments in AI infrastructure as well as sales mix shift to Azure, offset in part by efficiency gains in Azure. • Operating expenses increased $1.4 billion or 7% driven by continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio.”

Annual report 2026A · The company itself

“OPERATING EXPENSES Research and Development (In millions, except percentages) 2026 2025 Percentage Change Research and development $ 35,562 $ 32,488 9% As a percent of revenue 11% 12% (1)ppt Research and development expenses include payroll, stock-based compensation expense, employee benefits, and other headcount-related expenses associated with product development.”

Annual report 2026A · The company itself

“Fiscal Year 2026 Compared with Fiscal Year 2025 Research and development expenses increased $3.1 billion or 9% driven by continued investments in compute capacity, AI talent, and data to support product development that benefits the entire portfolio, as well as impairment and other related expenses in our XBOX business.”

Annual report 2026A · The company itself

“The Ambitions That Drive Us To achieve our vision, our research and development efforts focus on three interconnected ambitions: • Reinvent productivity and business processes to help organizations and individuals work and collaborate more securely and efficiently. • Build the intelligent cloud and intelligent edge platform to provide a foundation for our customers’ digital workloads, including hybrid consistency, developer productivity, data and AI capabilities, and trusted security and compliance. • Create more personal computing experiences that empower people to play, create, and interact with technology in more intuitive, engaging, and dynamic ways.”

Annual report 2026A · The company itself

“We plan to continue to make significant investments in a broad range of product research and development activities, including AI-based products and services.”

Annual report 2026A · The company itself

“Our success depends on our ability to develop, deliver, and maintain competitive cloud-based and AI products and services that achieve broad customer adoption and sustainable revenue growth. Our ability to succeed depends on our ability to develop and deliver differentiated products and services that meet evolving customer needs, achieve broad adoption, maintain customer trust, and generate sustainable revenue and growth.”

Annual report 2026A · The company itself

“Our AI strategy also depends in part on strategic relationships with third parties that provide technologies, models, products, and services that enhance our offerings. These relationships may change over time, and many of these partners compete with us with respect to certain products and services. Changes in strategic priorities, contractual arrangements, our access to third-party technologies, or key commercial relationships could adversely affect the competitiveness of our AI products and services.”

Annual report 2026A · The company itself

“We will continue to make significant investments in research, development, and marketing for existing products, services, and technologies, including AI-based products and services.”

Annual report 2026A · The company itself

“Additionally, we have a long-term strategic partnership with OpenAI.”

Annual report 2026A · The company itself

“Our increasing user traffic, our growth in services, and the complexity of our products and services demand more infrastructure capacity and computing power. We have spent and will continue to spend substantial amounts to build, purchase, or lease datacenters and equipment and to upgrade our technology and network infrastructure. Our infrastructure capacity depends on the availability of permitted and buildable land, predictable and affordable energy, networking supplies, and servers, including graphics processing units and other components. These demands continue to increase as we introduce new products and services and support the growth and the augmentation of existing services, and scale further the incorporation of AI features and/or functionality.”

Annual report 2026A · The company itself

“BUSINESS GENERAL Microsoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly.”

Annual report 2026A · The company itself

“We develop and support a broad portfolio of technology solutions for individuals and businesses, focusing on secure, trusted, and innovative platforms and applications that meet evolving customer needs across AI, cloud computing, productivity and collaboration, and personal computing.”

Annual report 2026A · The company itself

“Productivity and Business Processes Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises: • Microsoft 365 Commercial products and cloud services, including Microsoft 365 Commercial cloud, comprising Microsoft 365 Commercial, Enterprise Mobility + Security, the cloud portion of Windows Commercial, the per-user portion of Power BI, Exchange, SharePoint, Microsoft Teams, Microsoft 365 Security and Compliance, and Microsoft 365 Copilot; and Microsoft 365 Commercial products, comprising Windows Commercial on-premises and Office licensed on-premises.”

Annual report 2026A · The company itself

“Microsoft 365 Commercial is an AI-powered business and productivity solutions platform that brings together Office, Windows, Microsoft 365 Copilot, and Enterprise Mobility + Security to help organizations empower their employees.”

Annual report 2026A · The company itself

“Microsoft 365 Consumer is designed to increase personal productivity and creativity through a range of products and services. Growth depends on our ability to reach new users, add value to our core product set with new features including AI tools, and continue to expand our product and service offerings into new markets.”

Annual report 2026A · The company itself

“Dynamics Products and Cloud Services Dynamics provides cloud-based and on-premises business solutions for financial management, enterprise resource planning (“ERP”), customer relationship management (“CRM”), and supply chain management, as well as agentic AI and other low code application development platforms, for small and medium businesses, large organizations, and divisions of global enterprises.”

Annual report 2026A · The company itself

“Intelligent Cloud Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that power modern business and developers. This segment primarily comprises: • Server products and cloud services, including Azure and other cloud services, comprising cloud and AI consumption-based services, GitHub cloud services, Health and Life Sciences cloud services (formerly Nuance Healthcare cloud services), virtual desktop offerings, and other cloud services; and Server products, comprising SQL Server, Windows Server, Visual Studio, System Center, related Client Access Licenses (“CALs”), and other on-premises offerings.”

Annual report 2026A · The company itself

“Azure AI offerings provide a competitive advantage as companies seek ways to optimize and scale their business with AI. We offer supercomputing power for AI at scale to run large workloads, complemented by our rapidly expanding portfolio of AI cloud services (including the latest models) and hardware, which includes custom-built silicon and strong partnerships with chip manufacturers.”

Annual report 2026A · The company itself

“Azure AI Foundry is a unified platform for developers to design, customize, and manage AI applications and agents.”

Annual report 2026A · The company itself

“GitHub includes both cloud and on-premises offerings. GitHub provides a collaboration platform for developers to manage code and incorporate AI and agent-based tools across the software development lifecycle.”

Annual report 2026A · The company itself

“Health and Life Sciences cloud services provides AI solutions to the healthcare industry.”

Annual report 2026A · The company itself

“We are providing access to AI across our offerings and enabling customers and partners to build AI-based solutions using our platforms. These capabilities may be developed by Microsoft or third parties and are becoming an increasing part of our business.”

Annual report 2026A · The company itself

“Highlights from fiscal year 2026 compared with fiscal year 2025 included: • Microsoft Cloud revenue increased 27% to $214.4 billion. • Commercial remaining performance obligation increased 84% to $678 billion. • Microsoft 365 Commercial cloud revenue increased 17%. • Microsoft 365 Consumer cloud revenue increased 28%. • LinkedIn revenue increased 11%. • Dynamics 365 revenue increased 18%. • Azure and other cloud services revenue increased 41%. • Windows OEM and Devices revenue decreased slightly. • XBOX content and services revenue decreased 5%. • Search advertising (formerly Search and news advertising) revenue excluding traffic acquisition costs increased 12%.”

Annual report 2026A · The company itself

“Fiscal Year 2026 Compared with Fiscal Year 2025 Revenue increased $50.1 billion or 18% driven by growth in Microsoft Cloud.”

Annual report 2026A · The company itself

“Microsoft 365 Commercial products and cloud services revenue increased $14.2 billion or 16%. Microsoft 365 Commercial cloud revenue grew 17% with growth in revenue per user driven by Microsoft 365 Copilot and Microsoft 365 E5.”

Annual report 2026A · The company itself

“Dynamics 365 revenue grew 18% with growth across all workloads.”

Annual report 2026A · The company itself

“Intelligent Cloud Revenue increased $31.5 billion or 30%. • Server products and cloud services revenue increased $31.0 billion or 31% driven by Azure and other cloud services. Azure and other cloud services revenue grew 41% driven by demand for services across the platform with continued growth across all workloads.”

Annual report 2026A · The company itself

“Search advertising revenue excluding traffic acquisition costs increased 12% driven by higher search volume and revenue per search, as well as benefit from third-party partnerships.”

Annual report 2026A · The company itself

“We have made and are continuing to make significant capital and operational investments to develop, train, deploy, and support AI models and related cloud-based services, including building and expanding datacenters, acquiring necessary components, and securing energy resources. These investments are being made at significant scale and on an accelerated timeline, require substantial and increasing capital expenditures and continued access to capital, and are in advance of fully developed revenue streams.”

Annual report 2026A · The company itself

“The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins. We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services.”

Annual report 2026A · The company itself

“Our success depends on our ability to develop, deliver, and maintain competitive cloud-based and AI products and services that achieve broad customer adoption and sustainable revenue growth. Our ability to succeed depends on our ability to develop and deliver differentiated products and services that meet evolving customer needs, achieve broad adoption, maintain customer trust, and generate sustainable revenue and growth.”

Annual report 2026A · The company itself

“Our increasing user traffic, our growth in services, and the complexity of our products and services demand more infrastructure capacity and computing power. We have spent and will continue to spend substantial amounts to build, purchase, or lease datacenters and equipment and to upgrade our technology and network infrastructure. Our infrastructure capacity depends on the availability of permitted and buildable land, predictable and affordable energy, networking supplies, and servers, including graphics processing units and other components. These demands continue to increase as we introduce new products and services and support the growth and the augmentation of existing services, and scale further the incorporation of AI features and/or functionality.”

Annual report 2026A · The company itself

“Azure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, deploy, and manage applications on any platform or device. Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, and Internet of Things.”

Annual report 2026A · The company itself

“Azure AI offerings provide a competitive advantage as companies seek ways to optimize and scale their business with AI. We offer supercomputing power for AI at scale to run large workloads, complemented by our rapidly expanding portfolio of AI cloud services (including the latest models) and hardware, which includes custom-built silicon and strong partnerships with chip manufacturers.”

Annual report 2026A · The company itself

“Highlights from fiscal year 2026 compared with fiscal year 2025 included: • Microsoft Cloud revenue increased 27% to $214.4 billion. • Commercial remaining performance obligation increased 84% to $678 billion. • Microsoft 365 Commercial cloud revenue increased 17%. • Microsoft 365 Consumer cloud revenue increased 28%. • LinkedIn revenue increased 11%. • Dynamics 365 revenue increased 18%. • Azure and other cloud services revenue increased 41%. • Windows OEM and Devices revenue decreased slightly. • XBOX content and services revenue decreased 5%. • Search advertising (formerly Search and news advertising) revenue excluding traffic acquisition costs increased 12%.”

Annual report 2026A · The company itself

“Fiscal Year 2026 Compared with Fiscal Year 2025 Revenue increased $50.1 billion or 18% driven by growth in Microsoft Cloud.”

Annual report 2026A · The company itself

“Intelligent Cloud Revenue increased $31.5 billion or 30%. • Server products and cloud services revenue increased $31.0 billion or 31% driven by Azure and other cloud services. Azure and other cloud services revenue grew 41% driven by demand for services across the platform with continued growth across all workloads.”

Annual report 2026A · The company itself

“In some cases, these parties are significant customers of Azure and other cloud services.”

Annual report 2026A · The company itself

“Threat actors also utilize emerging technologies such as AI and machine learning to, among other things, increase the speed and scale of attacks by generating and refining malicious content and code, automate reconnaissance and targeting, accelerate their ability to detect or exploit vulnerabilities, and rapidly iterate on attack techniques, which can broaden the scope, intensity, and sophistication of campaigns and reduce the time we have to identify and mitigate emerging threats.”

Annual report 2026A · The company itself

“Increasing use of AI, including models, algorithms, copilots, and autonomous or semi-autonomous agents, in our internal or third-party systems may create new attack surfaces or methods for adversaries. Our business policies and internal security controls may not keep pace with emerging threats or the evolving regulatory landscape.”

Annual report 2026A · The company itself

“PART I Item 1A • Cybersecurity: Legislative and regulatory actions related to cybersecurity may increase the costs associated with developing, implementing, or securing our products and services. The legal and regulatory environment in this area is complex and continues to evolve across multiple jurisdictions. As a result, there is considerable uncertainty regarding both current and future compliance obligations.”

Annual report 2026A · The company itself

“Public scrutiny of our decisions regarding user privacy, data practices, content, or development and deployment of AI. • Data security breaches, cybersecurity incidents, responsible AI failures, compliance failures, or actions of partners or individual employees.”

Annual report 2026A · The company itself

“The Ambitions That Drive Us To achieve our vision, our research and development efforts focus on three interconnected ambitions: • Reinvent productivity and business processes to help organizations and individuals work and collaborate more securely and efficiently. • Build the intelligent cloud and intelligent edge platform to provide a foundation for our customers’ digital workloads, including hybrid consistency, developer productivity, data and AI capabilities, and trusted security and compliance. • Create more personal computing experiences that empower people to play, create, and interact with technology in more intuitive, engaging, and dynamic ways.”

Annual report 2026A · The company itself

“We develop and support a broad portfolio of technology solutions for individuals and businesses, focusing on secure, trusted, and innovative platforms and applications that meet evolving customer needs across AI, cloud computing, productivity and collaboration, and personal computing.”

Annual report 2026A · The company itself

“What We Offer Founded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential. We offer an array of services, including cloud-based solutions that provide customers with AI, software, services, platforms, and content, and we provide solution support and consulting services.”

Annual report 2026A · The company itself

“This uncertainty increases the risk that we may incur additional operational costs, face regulatory enforcement actions, or encounter challenges in the development and deployment of our products. • Handling of personal data: Legal requirements relating to the collection, storage, handling, and transfer of personal data globally continue to evolve. The growth of our Internet- and cloud-based services internationally relies on the movement of data across national boundaries. Data protection authorities and governments in the EU and other markets have and may again restrict and/or block the use of services that involve the transfer of data across borders.”

Annual report 2026A · The company itself

“Our product distribution system relies on an extensive partner and retail network. OEMs building devices that run our software have also been a significant means of distribution.”

Annual report 2026A · The company itself

“What We Offer Founded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential. We offer an array of services, including cloud-based solutions that provide customers with AI, software, services, platforms, and content, and we provide solution support and consulting services.”

Annual report 2026A · The company itself

“Intelligent Cloud Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that power modern business and developers. This segment primarily comprises: • Server products and cloud services, including Azure and other cloud services, comprising cloud and AI consumption-based services, GitHub cloud services, Health and Life Sciences cloud services (formerly Nuance Healthcare cloud services), virtual desktop offerings, and other cloud services; and Server products, comprising SQL Server, Windows Server, Visual Studio, System Center, related Client Access Licenses (“CALs”), and other on-premises offerings.”

Annual report 2026A · The company itself

“Azure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, deploy, and manage applications on any platform or device. Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, and Internet of Things.”

Annual report 2026A · The company itself

“We and our competitors continue to devote significant resources to developing and deploying cloud-based strategies and services for consumers and business customers. • Even as we transition more of our business to infrastructure-, platform-, and software-as-a-service business models, the license-based proprietary software model generates a substantial portion of our software revenue.”

Annual report 2026A · The company itself

“Microsoft 365 Commercial revenue is mainly affected by a combination of continued installed base growth and average revenue per user expansion, as well as the continued shift from Office licensed on-premises to Microsoft 365.”

Annual report 2026A · The company itself

“Dynamics revenue is driven by the number of users licensed and applications consumed, expansion of average revenue per user, and the continued shift to Dynamics 365, a unified set of cloud-based intelligent business applications, including our low code development platforms, such as Power Apps and Power Automate.”

Annual report 2026A · The company itself

“Azure revenue is mainly affected by infrastructure-as-a-service and platform-as-a-service consumption-based services.”

Annual report 2026A · The company itself

“XBOX revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising.”

Annual report 2026A · The company itself

“We and our competitors continue to devote significant resources to developing and deploying cloud-based strategies and services for consumers and business customers. • Even as we transition more of our business to infrastructure-, platform-, and software-as-a-service business models, the license-based proprietary software model generates a substantial portion of our software revenue.”

Annual report 2026A · The company itself

“XBOX (formerly Gaming), including XBOX hardware and XBOX content and services, comprising first- and third-party content (including games and in-game content), XBOX Game Pass and other subscriptions, XBOX Cloud Gaming, advertising, and other cloud services. • Search advertising (formerly Search and news advertising), comprising Bing, Copilot, Microsoft News, Microsoft Edge, and third-party affiliates.”

Annual report 2026A · The company itself

“XBOX Microsoft is expanding how billions of people globally access and play video games on PC, console, mobile, and cloud. Our game content is developed through a collection of first-party studios creating iconic and differentiated gaming experiences.”

Annual report 2026A · The company itself

“XBOX revenue decreased $1.7 billion or 7% driven by declines in XBOX content and services and XBOX hardware.”

Annual report 2026A · The company itself

“More Personal Computing revenue decreased driven by XBOX (formerly Gaming), offset in part by growth in Search advertising.”

Annual report 2026A · The company itself

“Our reputation and brands are globally recognized and are important to our business. Our reputation and brands affect our ability to attract and retain consumer, business, and public-sector customers.”

Annual report 2026A · The company itself

“If demand for computing power, PCs, servers, and other computing devices declines, or consumer or business spending for those products declines, our results of operations could be adversely affected.”

Annual report 2026A · The company itself

“Microsoft 365 Consumer cloud revenue grew 28% driven by growth in revenue per user and Microsoft 365 Consumer subscriber growth of 7%. • LinkedIn revenue increased $2.0 billion or 11% with growth across all lines of business.”

Annual report 2026A · The company itself

“XBOX revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising.”

Annual report 2026A · The company itself

“XBOX (formerly Gaming), including XBOX hardware and XBOX content and services, comprising first- and third-party content (including games and in-game content), XBOX Game Pass and other subscriptions, XBOX Cloud Gaming, advertising, and other cloud services. • Search advertising (formerly Search and news advertising), comprising Bing, Copilot, Microsoft News, Microsoft Edge, and third-party affiliates.”

Annual report 2026A · The company itself

“Search Advertising Our Search advertising business is designed to deliver relevant search, native, and display advertising to a global audience. Microsoft Copilot is a digital companion designed to inform, entertain, and inspire.”

Annual report 2026A · The company itself

“Microsoft 365 Commercial is an AI-powered business and productivity solutions platform that brings together Office, Windows, Microsoft 365 Copilot, and Enterprise Mobility + Security to help organizations empower their employees.”

Annual report 2026A · The company itself

“GitHub includes both cloud and on-premises offerings. GitHub provides a collaboration platform for developers to manage code and incorporate AI and agent-based tools across the software development lifecycle.”

Annual report 2026A · The company itself

“Health and Life Sciences cloud services provides AI solutions to the healthcare industry.”

Annual report 2026A · The company itself

“Server products revenue increased 1% primarily driven by higher purchases of licenses running in multi-cloud environments, offset in part by continued customer shift to cloud. • Enterprise and partner services revenue increased $500 million or 6% driven by growth in Enterprise Support Services.”

Annual report 2026A · The company itself

“We derive substantial revenue from government contracts.”

Annual report 2026A · The company itself

“Microsoft 365 Commercial seats grew 6% driven by small and medium businesses and frontline worker offerings.”

Annual report 2026A · The company itself

“In addition, alternative energy sources and other emerging solutions may not be available in sufficient quantities, may not timely scale to meet our requirements, or may be available only at higher costs. If we are unable to secure adequate power resources on commercially reasonable terms, our ability to support customer demand and execute our growth strategy could be adversely affected.”

Annual report 2026A · The company itself

“We develop and support a broad portfolio of technology solutions for individuals and businesses, focusing on secure, trusted, and innovative platforms and applications that meet evolving customer needs across AI, cloud computing, productivity and collaboration, and personal computing.”

Annual report 2026A · The company itself

“In addition, alternative energy sources and other emerging solutions may not be available in sufficient quantities, may not timely scale to meet our requirements, or may be available only at higher costs. If we are unable to secure adequate power resources on commercially reasonable terms, our ability to support customer demand and execute our growth strategy could be adversely affected.”

Annual report 2026A · The company itself

“As components are delayed or become unavailable or more expensive, whether because of supplier capacity constraint, industry shortages, legal or regulatory changes that restrict supply sources, geopolitical tensions, trade restrictions, tariffs, transportation disruptions, supplier financial distress, natural disasters, public health events, instability in regions important to our or our suppliers’ supply chains, or other reasons, we may not obtain timely replacement supplies, or may be able to obtain supplies only by entering into long-term purchase commitments, price commitments, paying prices above prevailing market rates, or other arrangements on terms that are less favorable than prevailing market terms.”

Annual report 2026A · The company itself

“Examples include laws and regulations regarding: • Competition laws and new market regulation: Government agencies closely scrutinize us under U.S. and foreign competition laws. Governments are actively enforcing competition laws and regulations and enacting new regulations to intervene in digital markets, and this includes markets such as the EU, the United Kingdom, the U.S., and China. Some jurisdictions also allow competitors or consumers to assert claims of anti-competitive conduct.”

Annual report 2026A · The company itself

“Trade: Increasing trade laws, policies, sanctions, and other regulatory requirements also affect our operations in and outside the U.S. relating to trade and investment. Economic sanctions in the U.S., the EU, and other countries could prohibit business with restricted entities or countries. U.S. export controls restrict Microsoft from offering many of its products and services to, or making investments in, certain entities in specified countries.”

Annual report 2026A · The company itself

“U.S. import controls restrict us from integrating certain information and communication technologies into our supply chain and allow for government review of transactions involving information and communications technology from countries determined to be foreign adversaries.”

Annual report 2026A · The company itself

“Administration priorities create an unpredictable trade landscape. U.S. tariffs, shifting AI export controls policies, and disagreements among governments on sanctions policies toward third countries, has and may continue to increase operational costs, create uncertainty in the continuity of our products, and accelerate sovereignty initiatives among international partners and customers.”

Annual report 2026A · The company itself

“Periods of intense diplomatic or armed conflict, such as the conflicts in Ukraine and the Middle East could continue to result in (1) new and rapidly evolving sanctions and trade restrictions, which may impair trade with sanctioned individuals and countries, and (2) negative impacts to regional trade ecosystems among our customers, partners, and us.”

Annual report 2026A · The company itself

“Global, regional, and local economic developments, monetary policy, geopolitical tension, restrictions on international trade, such as tariffs and other controls on imports or exports, inflation, and recession, as well as political and military disputes, could adversely affect our results of operations.”

Annual report 2026A · The company itself

“Changes to trade policy or agreements as a result of populism, protectionism, or economic nationalism may result in higher tariffs, local sourcing initiatives, and non-local sourcing restrictions, disagreements among governments on export controls and sanctions toward third countries, investment restrictions, or other developments that make it more difficult to operate and sell our products in foreign countries.”

Annual report 2026A · The company itself

“Further, global, regional, and local economic developments and changes in global trade policies such as restrictions on international trade, including tariffs and other controls on imports or exports, could result in increased supply chain challenges, cost volatility, and consumer and economic uncertainty which may adversely affect our results of operations.”

Annual report 2026A · The company itself

“We have experienced and may continue to experience supply constraints, including shortages of semiconductors, networking equipment, power systems, cooling equipment, and other key components. Expanding manufacturing or supply capacity for certain components may require significant investments and multi-year lead times. As components are delayed or become unavailable or more expensive, whether because of supplier capacity constraint, industry shortages, legal or regulatory changes that restrict supply sources, geopolitical tensions, trade restrictions, tariffs, transportation disruptions, supplier financial distress, natural disasters, public health events, instability in regions important to our or our suppliers’ supply chains, or other reasons, we may not obtain timely replacement supplies, or may be able to obtain supplies only by entering into long-term purchase commitments, price commitments, paying prices above prevailing market rates, or other arrangements on terms that are less favorable than prevailing market terms.”

Annual report 2026A · The company itself

“U.S. import controls restrict us from integrating certain information and communication technologies into our supply chain and allow for government review of transactions involving information and communications technology from countries determined to be foreign adversaries.”

Annual report 2026A · The company itself

“There are few qualified suppliers for certain components of our servers and devices. Extended or unforeseen disruptions, or limited availability of components from these suppliers could impact our ability to operate our datacenters and manufacture devices on time to meet consumer demand.”

Annual report 2026A · The company itself

“The cost structure for AI products and services is subject to significant uncertainty, including with respect to model training and inference costs, the availability and pricing of components, and energy costs.”

Annual report 2026A · The company itself

“There are limited suppliers for certain critical device and datacenter components, and those items are in short supply. We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI products and services.”

Annual report 2026A · The company itself

“In addition to infrastructure, other products such as XBOX consoles, Surface devices, and other hardware are similarly subject to supply chain challenges and disruptions, resulting in shortages which could adversely affect our business, operations, financial condition, and results of operations.”

Annual report 2026A · The company itself

“However, some of our products contain certain components for which there are very few qualified suppliers. Extended or unforeseen disruptions, or limited availability of components from these suppliers could impact our ability to operate our datacenters and manufacture devices on time to meet consumer demand.”

Annual report 2026A · The company itself

“The availability, reliability, and cost of electrical power are critical to the operation and expansion of our datacenters. In many regions, electricity generation, transmission, and distribution infrastructure is experiencing increasing demand and capacity constraints. Limitations in power availability, delays in obtaining power connections, outages, shortages, increased energy costs, or requirements imposed by utilities, regulators, or other market participants could restrict our ability to develop or expand datacenter capacity.”

Annual report 2026A · The company itself

“A catastrophic event that results in the destruction or disruption of any of our critical business or systems, or the infrastructure or systems they rely on, such as power grids, could harm our ability to conduct normal business operations or adversely affect our results of operations.”

Annual report 2026A · The company itself

“We continue to align our datacenter locations and server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units and other components.”

Annual report 2026A · The company itself

“We have made and are continuing to make significant capital and operational investments to develop, train, deploy, and support AI models and related cloud-based services, including building and expanding datacenters, acquiring necessary components, and securing energy resources. These investments are being made at significant scale and on an accelerated timeline, require substantial and increasing capital expenditures and continued access to capital, and are in advance of fully developed revenue streams.”

Annual report 2026A · The company itself

“The cost structure for AI products and services is subject to significant uncertainty, including with respect to model training and inference costs, the availability and pricing of components, and energy costs.”

Annual report 2026A · The company itself

“The construction and operation of datacenters also requires significant numbers of skilled technical, engineering, construction, and operational personnel. Labor shortages, competition for talent, wage inflation, labor disputes, immigration restrictions, or shortages of specialized contractors could increase operating and construction costs, extend project timelines, and adversely affect our ability to deploy infrastructure at the pace required to meet demand.”

Annual report 2026A · The company itself

“Our business depends on our ability to attract and retain talented employees. Our business is based on successfully attracting, training, and retaining talented employees representing diverse backgrounds, experiences, and skill sets.”

Annual report 2026A · The company itself

“The unionization of significant employee populations could result in higher costs and other operational changes necessary to respond to changing conditions and to establish new relationships with worker representatives.”

Annual report 2026A · The company itself

“Our success is highly dependent on our ability to attract and retain qualified employees. We hire a mix of university and industry talent worldwide.”

Annual report 2026A · The company itself

“HUMAN CAPITAL RESOURCES As of June 30, 2026, we employed approximately 223,000 people on a full-time basis, 121,000 in the U.S. and 102,000 internationally.”

Annual report 2026A · The company itself

“They are further compounded by the evolving regulatory landscape, with new laws emerging globally and increased scrutiny from regulators and lawmakers. Certain AI technologies and use cases present ethical issues or may have broad or uneven impacts on society or vulnerable groups within society. There is also rising divergence globally in how to address these issues and impacts, with the result that we will need to navigate a web of different tensions across geographies.”

Annual report 2026A · The company itself

“AI: Legislative and regulatory action is evolving with respect to AI, which could increase costs or restrict opportunity. For example, the EU’s AI Act may increase costs or impact the provision or operation of our AI models and services in the European market. In addition, governments may impose restrictions on the development, deployment, availability, or cross-border access to advanced AI models based on safety, cybersecurity, or national security or may apply laws to AI models in ways we cannot anticipate.”

Annual report 2026A · The company itself

“The potential replacement of the rescinded AI Diffusion Rule, expanded export license conditions, and other potential AI-related rulemakings could adversely affect Microsoft’s business, strategy, and operations.”

Annual report 2026A · The company itself

“As components are delayed or become unavailable or more expensive, whether because of supplier capacity constraint, industry shortages, legal or regulatory changes that restrict supply sources, geopolitical tensions, trade restrictions, tariffs, transportation disruptions, supplier financial distress, natural disasters, public health events, instability in regions important to our or our suppliers’ supply chains, or other reasons, we may not obtain timely replacement supplies, or may be able to obtain supplies only by entering into long-term purchase commitments, price commitments, paying prices above prevailing market rates, or other arrangements on terms that are less favorable than prevailing market terms.”

Annual report 2026A · The company itself

“Periods of intense diplomatic or armed conflict, such as the conflicts in Ukraine and the Middle East could continue to result in (1) new and rapidly evolving sanctions and trade restrictions, which may impair trade with sanctioned individuals and countries, and (2) negative impacts to regional trade ecosystems among our customers, partners, and us.”

Annual report 2026A · The company itself

“Abrupt political change, terrorist activity, and armed conflict, such as the conflicts in Ukraine and the Middle East, pose economic and other risks, which may negatively impact our ability to sell to and collect from customers, increase our operating costs, or otherwise disrupt our operations in markets both directly and indirectly impacted by such events. These conditions also may add uncertainty to the timing and budget for technology investment decisions by our customers and may cause supply chain disruptions.”

Annual report 2026A · The company itself

“Administration priorities create an unpredictable trade landscape. U.S. tariffs, shifting AI export controls policies, and disagreements among governments on sanctions policies toward third countries, has and may continue to increase operational costs, create uncertainty in the continuity of our products, and accelerate sovereignty initiatives among international partners and customers.”

Annual report 2026A · The company itself

“Adverse economic or market conditions could harm our business. Worsening economic conditions, including inflation, recession, pandemic, or other changes in economic conditions, periods of economic uncertainty, evolution of customer demand, technology investment cycles, interest rates, foreign exchange rates, or the timing and mix of customer spending, may cause lower or delayed IT spending and adversely affect our results of operations.”

Annual report 2026A · The company itself

“Global, regional, and local economic developments, monetary policy, geopolitical tension, restrictions on international trade, such as tariffs and other controls on imports or exports, inflation, and recession, as well as political and military disputes, could adversely affect our results of operations.”

Annual report 2026A · The company itself

“Adverse economic or market conditions could harm our business. Worsening economic conditions, including inflation, recession, pandemic, or other changes in economic conditions, periods of economic uncertainty, evolution of customer demand, technology investment cycles, interest rates, foreign exchange rates, or the timing and mix of customer spending, may cause lower or delayed IT spending and adversely affect our results of operations.”

Annual report 2026A · The company itself

“Cash Flows Cash from operations increased $46.8 billion to $182.9 billion for fiscal year 2026, primarily due to an increase in cash received from customers and a decrease in cash used to pay income taxes, offset in part by an increase in cash paid to suppliers.”

Annual report 2026A · The company itself

“Although we hedge a portion of our international currency exposure, significant fluctuations in foreign exchange rates between the U.S. dollar and foreign currencies could adversely affect our results of operations.”

Annual report 2026A · The company itself

“Many of these revenue and expenses are denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may significantly affect revenue and expenses.”

Annual report 2026A · The company itself

“Our ability to develop additional capacity is also subject to land availability, zoning restrictions, environmental reviews, permitting requirements, and other regulatory approvals. Changes in governmental policies, permitting processes, environmental regulations, sustainability requirements, building standards, energy regulations, or other factors beyond our control may delay projects, restrict development opportunities, impose additional compliance obligations, or increase costs. We also face community opposition, state and local moratoriums, and hyper-local dissent, as well as increasingly coordinated opposition to infrastructure development across jurisdictions, including through the involvement or influence of elected officials, policymakers, and advocacy groups.”

Annual report 2026A · The company itself

“Catastrophic events or geopolitical conditions could disrupt our business. A disruption or failure of our systems, operations, or supply chain because of a major earthquake, weather event, cyberattack, terrorist attack, pandemic, or other catastrophic event could cause delays in completing sales, providing services, or performing other critical functions.”

Annual report 2026A · The company itself

“We derive substantial revenue from licenses of Windows operating systems on PCs. We face significant competition from competing platforms developed for new types of devices, including smartphones and tablets.”

Annual report 2026A · The company itself

“Environmental regulations or changes in the supply, demand, or available sources of energy or other resources may affect the availability or cost of goods and services, including natural resources, necessary to run our business. Changes in climate where we operate may increase the costs of powering and cooling computer hardware we use to develop software and provide cloud-based services.”

Annual report 2026A · The company itself

“We are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that may apply to our products and online services offerings, and those that impose requirements related to user privacy, cybersecurity, telecommunications, data storage and protection, digital accessibility, advertising, and online safety. Laws in several jurisdictions, including EU Member State laws under the European Electronic Communications Code, increasingly define certain of our services as regulated services. This trend may continue with our offerings becoming subject to additional data protection, security, digital safety, law enforcement surveillance, and other obligations.”

Annual report 2026A · The company itself

“Restraints on the flow of technical and professional talent, including those derived from changes to U.S. immigration policies or laws, may inhibit our ability to adequately staff our research and development efforts.”

Annual report 2026A · The company itself

“PART I Item 1A The occurrence of regional epidemics or a global pandemic could adversely affect our business, operations, financial condition, and results of operations.”

Annual report 2026A · The company itself

“Our customers, employees, and infrastructure are located throughout the world and a significant part of our revenue comes from international sales.”

Annual report 2026A · The company itself

“Our effective tax rate was lower than the U.S. federal statutory rate, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland.”

Annual report 2026A · The company itself

“As an example, our corporate headquarters, a significant portion of our research and development activities, and certain other essential business operations are in the Seattle, Washington area, and we have other business operations in the Silicon Valley area of California, both of which are seismically active regions.”

Annual report 2026A · The company itself

“Worsening economic conditions, including inflation, recession, pandemic, or other changes in economic conditions, periods of economic uncertainty, evolution of customer demand, technology investment cycles, interest rates, foreign exchange rates, or the timing and mix of customer spending, may cause lower or delayed IT spending and adversely affect our results of operations.”

Annual report 2026A · The company itself

“Our customers, employees, and infrastructure are located throughout the world and a significant part of our revenue comes from international sales.”

Annual report 2026A · The company itself