Performance

Revenue increased $11.6 billion or 17% driven by Intelligent Cloud and Productivity and Business Processes, offset in part by More Personal Computing. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue decreased driven by Gaming, offset in part by Search and news advertising as well as Windows OEM.

Cost of revenue increased $4.2 billion or 19% driven by growth in Microsoft Cloud.

Gross margin increased $7.5 billion or 16% with growth across each of our segments.

• Gross margin percentage decreased slightly driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains across the Microsoft Cloud and sales mix shift to higher margin businesses.

• Microsoft Cloud gross margin percentage decreased to 67% driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.

Operating expenses increased $840 million or 5% driven by research and development investments in compute capacity and AI talent, as well as impairment charges in our Gaming business.

Operating income increased $6.6 billion or 21% driven by growth in Productivity and Business Processes and Intelligent Cloud.

Revenue, gross margin, and operating income each included a favorable foreign currency impact of 2%.

Current year net income and diluted EPS were positively impacted by net gains from investments in OpenAI, which resulted in an increase in net income and diluted EPS of $7.6 billion and $1.02, respectively. Prior year net income and diluted EPS were negatively impacted by net losses from investments in OpenAI, which resulted in a decrease in net income and diluted EPS of $939 million and $0.12, respectively.