Microsoft Earnings Analysis: Pay No Attention to the Capex Behind the AI ⭐️

In this free-wheeling analysis of Microsoft's latest earnings, I look at Windows, Edge, Bing, and Xbox. You know, all those businesses that Wall Street couldn't not care less about. But don't worry, this hits on AI too. There's no way to avoid that.

To recap, Microsoft yesterday reported that it earned a net income of $31.8 billion on revenues of $82.9 billion in the quarter ending March 31, 2026. This was the third quarter of Microsoft's fiscal year 2026, and if all you care about are big numbers, then the business is doing great overall. But if you care about the truth, what you see if you dig deeper is a lot more troubling.

Same old, same old, in other words.

In this era, AI is the only thing that matters to Microsoft, investors, and Wall Street. And we will get to that; it's impossible to ignore. But first, I will focus on what you and I care about the most, the parts of Microsoft that sell software and services to human beings. That way, we can rip off the proverbial band-aid and get the worst news out of the way first.
Windows
If there's a theme to this earnings report, it's the equivalent of a magician waving their hands to take your attention away from the trick they're performing, a classic diversion tactic. The audience, in this case, is Wall Street, the analysts and investors who implicitly control Microsoft's power by determining through their actions how impressed they are by the business and its ability to grow. And if there is anything Wall Street wants to hear about from Microsoft less than Windows, it's a Windows business in crisis. And so Microsoft waved its hands furiously when discussing Windows in the wake of the earnings announcement.

"Monthly active Windows [PCs] surpassed 1.6 billion," Microsoft CEO Satya Nadella said during the post-earnings conference call, not pausing to note that this is the highest-ever figure that Microsoft has ever provided for Windows usage.

This statement came right after Nadella explained that his company was "doing the foundational work required to win back fans and strengthen engagement across Windows, Xbox, Bing, and Edge." Here, he neglected to state why it needs to reverse at least some of the enshittification that has to some degree ruined each of these offerings. But the fact that Microsoft is "prioritizing quality and serving [its] core users better" in 2026 is an implicit acknowledgment that it was not doing this in the recent past.

That's as close as we got to a mea culpa from Nadella during this call. He said that this work had begun in Windows with "performance improvements for lower memory devices, a streamlined Windows Update experience, and [a new] focus on the core features and fundamentals that matter most to our customers." I apologize for hammering on this, but what the f$%k was this company doing before this? That's rhetorical. It was doing this.

One of the obvious questions we have about Microsoft's sudden focus on Windows quality is why. That is...