Microsoft reported a 33 percent decline in Xbox hardware revenue in its third-quarter 2026 earnings report released on Wednesday, April 29, 2026, even as its cloud and AI businesses drove total company revenue to $82.9 billion.
The broader consumer-focused division also dipped, but Microsoft’s cloud segment posted $54.5 billion in revenue — a 29 percent year-over-year increase. Azure and other cloud services revenue rose 40 percent. Microsoft CEO Satya Nadella said in the earnings press release: “Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year.”
Microsoft 365 Copilot continued to grow, with paid seats increasing from 15 million to 20 million compared to the prior quarter. The company has added AI features to its productivity suite, including “vibe working” capabilities across Excel, Word, and PowerPoint. Microsoft 365 consumer cloud revenue increased 33 percent during the quarter, while its commercial segment grew 19 percent.
On the hardware side, Windows OEM and devices revenue declined 2 percent, which Microsoft attributed in part to a global memory shortage that has pushed the company to raise prices on its Surface devices. The company says upcoming Surface Pro and Surface Laptop launches could help reverse that trend.
The results highlight a widening gap between Microsoft’s enterprise cloud and AI operations — which continue to expand — and its consumer hardware businesses, which are facing ongoing pressure. The Xbox hardware decline and Surface pricing challenges suggest the company’s consumer device segment may face continued headwinds in the near term.
Source: The Verge