Microsoft Earnings Analysis: Transparency Is As Transparency Does ⭐

As we reported yesterday, Microsoft earned a net income of 36.6 billion on revenues of $92.3 billion in the quarter ending September 30, 2026. Those are both double-digit gains over the year-ago quarter, or 32 percent and 19 percent growth, respectively, year-over-year (YOY).

This quarter is most notable because it's the first reported under Microsoft's new financial reporting scheme. Microsoft says that the goal was to be more transparent, and Microsoft does provide a new range of hard numbers that help decipher the general health of the company. (More on that below.) But the real reason for this shift was to expand Microsoft's obfuscation of where it is spending money on its AI infrastructure buildouts. That is, it's being less transparent with that spending by pulling much of it out of capital expenditures (capex) and hiding it in other types of spending that are not reported as in its top-level financials, and some of which are reported only annually, not quarterly.

But let's work with what we've got.
Financial transparency
Microsoft now has two top-level business units:

Agents and Infra. This is basically the combination of Microsoft's two biggest businesses, Productivity and Business Processes and Intelligent Cloud, and so it includes Azure and Microsoft 365. It generated $76.8 billion in revenues, a gain of 25 percent YOY (with Microsoft re-reporting the year-ago quarter using the new structure).
Devices and Consumer. This is basically the old More Personal Computing business unit renamed, with Windows, Surface, XBOX, and advertising. It added $15.5 billion in revenues, a decline of 3 percent YOY.

From a transparency perspective, Microsoft is now reporting revenues for the following businesses.

Azure. $33,2 billion, up from $22.4 billion one year ago
Microsoft 365 cloud. $27.8 billion, up from $23.7 billion
Productivity and server licensing. $8.4 billion, down from $8.7 billion
Search and advertising. $6.6 billion, up from $5.9 billion
XBOX.
Industry solutions. $5.4 billion, up from $4.9 billion
Windows OEM and devices (PC makers plus Surface). $3.6 billion, down from $4.6 billion
Frontier and support services $2.1 billion, up from $2 billion

A few of these are what they seem. For example, Azure revenues are straightforward.

But then it gets weird. Others offer only a partial peek at the full picture, while others still are just confusing.

Microsoft 365 revenues are split between Microsoft 365 cloud and Productivity and server licensing, the latter of which is only partially attributable to Microsoft 365. And are there other Microsoft 365 revenues elsewhere in there? What the heck is Industry solutions?

Ditto for Windows. That Windows OEM and devices bit looks straightforward, but there's also a Windows OEM bit that removes Surface from the equation and Microsoft is not providing that number. Why? Because then we would learn how small Surface is as a business now.

I will give...