Microsoft builds the office software and cloud servers that companies and individuals use every day, then charges monthly or annual fees for access.
How Microsoft makes money
Enterprise and individual customers pay Microsoft subscription fees, licenses, and cloud-usage charges for its software and infrastructure. That money gets reinvested into data centers and AI research, which funds better products to sell back to the same customers — and whatever's left over goes to shareholders as dividends and buybacks.
cloud usage fees
Simplified. Source: 10-K FY2025, MD&A.
Where the revenue comes from
| Segment | Revenue | Share | Operating margin |
|---|---|---|---|
| Productivity & Business Processes (Office, Microsoft 365, LinkedIn, Dynamics) | $120.8B | 42.9% | 57.8% |
| Intelligent Cloud (Azure, server products) | $106.3B | 37.7% | 41.9% |
| More Personal Computing (Windows, Xbox/gaming, search ads, devices) | $54.6B | 19.4% | 25.9% |
Source: 10-K FY2025, p.38 (Segment Results of Operations).
| Region | Revenue | Share |
|---|---|---|
| United States | $144.5B | 51.3% |
| Outside the U.S. | $137.2B | 48.7% |
Source: 10-K FY2025, p.90 (Note 18 — Segment and Geographic Data).
Customers and competitors
Microsoft sells to enterprise (B2B) and consumer (B2C) customers simultaneously. Its 10-K states plainly that no individual customer or country outside the U.S. accounts for more than 10% of revenue — customer concentration risk here is low.
- Amazon (AWS) — the leading cloud infrastructure provider. Azure is the challenger, using its Windows/Office bundle as leverage to catch up.
- Google (Alphabet) — competes head-on in both office software (Workspace) and cloud (Google Cloud), and increasingly in search advertising via Bing and Copilot.
- Apple — competes on device operating systems (Mac vs. Windows), but its light enterprise-software footprint limits direct overlap.
Source: 10-K FY2025, p.90.
The metric that matters most in this sector
"Microsoft Cloud" revenue — Azure plus commercial Microsoft 365 cloud, commercial LinkedIn, and Dynamics 365 combined — is the single clearest read on how fast Microsoft's cloud transition is working. Nearly all of the company's growth is coming from here.
| Fiscal year | Revenue | YoY growth |
|---|---|---|
| FY2023 | $111.6B | +22% |
| FY2024 | $137.4B | +23% |
| FY2025 | $168.9B | +23% |
| FY2026 (preliminary) | $214B+ | ~+27% |
Source: 10-K FY2023 p.36, FY2024 p.37, FY2025 p.34 (MD&A). FY2026 figure is a preliminary estimate from the Q4 FY2026 earnings call (Jul 29, 2026), pending audited confirmation.
Leadership and ownership
Satya Nadella has been CEO since 2014 and added the chairman role in 2021, having previously run the cloud and enterprise division. Co-founder Bill Gates left the board in 2020 and is no longer involved in management. All 18 officers and directors combined hold roughly 2.28 million shares — under 1% of the roughly 7.4 billion shares outstanding — a token amount compared to institutional holders Vanguard (8.95%) and BlackRock (7.30%).
Source: DEF 14A, filed Oct 21, 2025 — ownership table, p.59–60; Nadella's tenure, p.42.
Capital returns
| Metric | Value |
|---|---|
| Dividend yield (current price) | 0.73% |
| Payout ratio (FY2025, dividends ÷ net income) | 23.6% |
| Consecutive years of dividend increases | 20 |
| FY2025 buybacks | $18.4B |
Source: 10-K FY2025, p.51 (Stockholders' Equity Statements), p.49 (Cash Flow).
How this company could fail
- AI infrastructure overinvestment — FY2025 capex hit $64.6B, up 45% year over year, with more than $50B guided for FY2026. If AI and cloud demand don't keep pace, free cash flow gets squeezed — it already has: FY2025 operating income rose 17% while FCF actually fell 3%.
- Cybersecurity — nation-state intrusion — disclosed in a January 2024 8-K, a state-backed hacking group breached employee email accounts and source-code repositories. Given how much customer data the company handles, a repeat incident would hit trust and revenue directly.
- Antitrust and regulatory risk — competition authorities in the U.S., EU, U.K., and China are actively scrutinizing cloud and AI market power. Fines or forced changes to how Microsoft bundles cloud and office products could shake the core strategy.
Source: 10-K FY2025, p.15–20 (Item 1A Risk Factors), p.49 (capex); Q4 FY2026 earnings call (Jul 29, 2026) for capex guidance.
Five-year financials
| FY21 | FY22 | FY23 | FY24 | FY25 | |
|---|---|---|---|---|---|
| Revenue | 168.1 | 198.3 | 211.9 | 245.1 | 281.7 |
| YoY growth | — | +18.0% | +6.9% | +15.7% | +14.9% |
| Operating income | 69.9 | 83.4 | 88.5 | 109.4 | 128.5 |
| Operating income YoY | — | +19.3% | +6.2% | +23.6% | +17.4% |
| Free cash flow | 56.1 | 65.1 | 59.5 | 74.1 | 71.6 |
| FCF YoY | — | +16.1% | -8.7% | +24.5% | -3.3% |
| Total debt | n/a | 49.8 | 47.2 | 51.6 | 43.2 |
Sources: 10-K FY2025, p.50 (income), p.53 (cash flow), p.52 (balance sheet); 10-K FY2023, p.53, p.55, p.52. FY2021 total debt wasn't available in the filings reviewed (neither 10-K carries that year's balance sheet).
What we still don't know
- FY2021's exact total debt — the 10-Ks reviewed (FY2023, FY2025) don't carry that year's balance sheet. The FY2021 or FY2022 10-K would fill this gap.
- Azure's exact dollar revenue isn't disclosed — Microsoft reports only its growth rate, never a dollar figure.
- When AI investments (OpenAI, Anthropic) start contributing net profit — related P&L adjustments came up repeatedly on the Q4 FY2026 call, but the payback timeline isn't something these filings settle. Future earnings calls are the place to check.
Frequently asked questions
What does Microsoft do?
Microsoft builds the office software and cloud servers that companies and individuals use every day — Office, Windows, and Azure cloud computing — then charges monthly or annual subscription fees for access.
What is Microsoft's market cap?
As of this article's data, Microsoft's market cap was about $3.68 trillion, with a P/E ratio of roughly 27.6x and a dividend yield of 0.73%.
Does Microsoft pay a dividend?
Yes — Microsoft pays a quarterly dividend, yielding about 0.73% at the price used in this article, on top of share buybacks.