How Microsoft Makes Money Now, With $10B From OpenAI

Microsoft said on 28 October 2026 that its revenue rose 19% to $92.3 billion in the quarter to 30 September, the first quarter of its 2027 fiscal year. Its quarterly filing, released the same day, says $10.0 billion of revenue came from commercial arrangements with OpenAI.

This explainer walks through how Microsoft makes money now, using only its results release and its Form 10-Q. Every ratio below is our arithmetic.

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Two New Segments

Microsoft now reports two segments, Agents and Infra and Devices and Consumer. Its release says: “We have recast certain prior period amounts to conform to the way we internally manage and monitor our business, which reflects the fiscal year 2027 changes to our segments announced in September 2026”.

Agents and Infra had $76.8 billion of revenue, up 25%, and $40.6 billion of operating income. Devices and Consumer had $15.5 billion of revenue, down 3%, and $5.4 billion of operating income. By our arithmetic, Agents and Infra was 83.2% of revenue and 88.3% of operating income.

Azure Is the Largest Product Line

The release breaks revenue into product and service lines. Azure brought in $33.2 billion, up from $22.4 billion a year earlier; Microsoft 365 cloud $27.8 billion; productivity and server licensing $8.4 billion; search and advertising $6.6 billion; and XBOX $5.4 billion.

By our arithmetic, Azure was 35.9% of revenue, against 28.8% a year earlier, and its $10.8 billion increase was 73.8% of the company’s $14.6 billion revenue increase. The release puts Microsoft Cloud revenue, a wider measure, at $63.9 billion, up 30%.

OpenAI Is a Customer and an Investment

Microsoft’s 10-Q says it holds an equity-method investment in OpenAI representing “an approximate 24 % interest on an as-converted basis”. Because OpenAI is therefore a related party, Microsoft discloses its transactions with it.

The filing says: “For the three months ended September 30, 2026, we recorded revenue from commercial arrangements with OpenAI, inclusive of revenue-sharing payments, of $ 10.0 billion”. By our arithmetic, that is 10.8% of the quarter’s revenue. Accounts receivable from OpenAI were $7.2 billion, and $12.0 billion of a $13.0 billion funding commitment had been funded.

Contracted Revenue Still to Come

The release says commercial remaining performance obligation, revenue Microsoft has contracted but not yet recognised, rose 73% to $677 billion. Tonight’s backlog piece tracks that figure over six quarters.

Where the Cash Went

Microsoft’s cash flow statement shows $58.0 billion of net cash from operations and $39.4 billion of additions to property and equipment, against $19.4 billion a year earlier. By our arithmetic, the difference was $18.6 billion.

The release says Microsoft “returned $10.2 billion to shareholders in the form of dividends and share repurchases”. Its cash flow statement shows $6.8 billion of common stock cash dividends paid, $4.4 billion of common stock repurchased and $4.9 billion of repayments of debt.

Leases and Depreciation

The 10-Q says Microsoft had additional leases, “primarily for datacenters”, that had not yet commenced of $364.6 billion at 30 September, commencing between fiscal year 2027 and fiscal year 2034. Its cash, cash equivalents and short-term investments were $64.5 billion, against $76.8 billion at 30 June.

Depreciation expense was $11.1 billion for the quarter, against $7.1 billion a year earlier, according to the filing, which says Microsoft Cloud gross margin percentage “decreased to 66% driven by sales mix shift to Azure”.

Go Deeper: Tonight’s Microsoft Pieces

• Microsoft Azure grows 48% as free cash flow falls to $18.6B (the results)
• Microsoft booked $10B from OpenAI, 11% of quarterly sales
• Microsoft backlog holds at $677B; 12-month slice is $203B
• Microsoft’s unstarted leases hit $365B, 5.7x its cash
• Microsoft’s depreciation bill jumps 56% to $11.1B a quarter
• Alphabet capex tops its operating cash; Microsoft’s is 68%
• Google Cloud alone added more revenue than all of Microsoft
• Microsoft offers buyouts to 60,000, about a quarter of staff (earlier this month)

The Structural Read

As we read the release, the new Agents and Infra segment holds Azure, Microsoft 365 cloud and the other commercial cloud lines, which is why its revenue grew 25% while Devices and Consumer fell 3%.

Microsoft’s 10-Q discloses OpenAI figures because OpenAI is an equity-method investee and therefore a related party; the filing gives $10.0 billion of revenue from commercial arrangements with OpenAI and $7.2 billion of receivables from it at 30 September.

By our arithmetic, additions to property and equipment were 67.9% of net cash from operations in the quarter: $39.4 billion against $58.0 billion.

Three Implications

FOR AZURE Its revenue rose to $33.2 billion from $22.4 billion, and the filing says Microsoft Cloud gross margin percentage decreased to 66% driven by sales mix shift to Azure.

FOR OPENAI It is both a customer, with $10.0 billion of revenue in the quarter, and an investee in which Microsoft holds an approximate 24% interest on an as-converted basis, according to the filing.

FOR THE BALANCE SHEET Cash, cash equivalents and short-term investments were $64.5 billion at 30 September against $76.8 billion at 30 June, while depreciation expense rose to $11.1 billion from $7.1 billion a year earlier.

The Business Engineer Lens

This story maps onto the Business Engineer framework Enterprise AI: From Software to Substrate.

The framework argues that enterprise software is moving from a tool customers buy to infrastructure they are woven into, and puts it this way: “The product is the interconnection.”

Microsoft’s release and 10-Q of 28 October report a company now organised around an Agents and Infra segment, with OpenAI as both a customer and an investee. The framework does not discuss these figures.

What Is Not Established

The filing does not split the $10.0 billion of OpenAI revenue between Azure and revenue-sharing, and it does not give AI revenue as a separate figure. Microsoft said it would give its outlook on the earnings call, which is not included here.

The Bottom Line

Microsoft’s release and filing show a company now reported in two segments, with Agents and Infra producing 83.2% of revenue and Azure supplying 73.8% of the year-on-year increase, by our arithmetic. OpenAI accounted for $10.0 billion of the quarter’s revenue, while Microsoft added $39.4 billion of property and equipment and had $364.6 billion of leases not yet commenced.