Microsoft (MSFT) Gross Margin History: Quarterly Data 2020–2025

Microsoft Gross Margin: 2020–2025

Microsoft (MSFT) posted a gross margin of 68.0% in 2025 Q4 (October–December 2025). The calendar-year 2025 average gross margin was approximately 68.6%, up from 69.4% in 2024. This steady percentage-point expansion is one of the clearest signals of Microsoft’s revenue mix shift toward premium cloud and AI services.

Gross margin at a technology platform company like Microsoft is both a profitability indicator and a strategic signal. When gross margin expands quarter-over-quarter while revenue also grows, it indicates the company is scaling its highest-margin products faster than its lower-margin ones — exactly what Microsoft’s Azure and Copilot strategies are designed to achieve.

Microsoft Annual Gross Margin by Year

Source: SEC EDGAR XBRL. Gross margin = gross profit / revenue.

Segment Gross Margin Dynamics

Microsoft’s reported blended gross margin reflects three very different segment economics. The Intelligent Cloud segment (Azure) runs at gross margins of approximately 70–72%. The Productivity and Business Processes segment (Microsoft 365, LinkedIn) runs at approximately 73–75%. The More Personal Computing segment (Windows OEM, Surface, Xbox hardware) runs at approximately 33–38%.

The key dynamic: Intelligent Cloud and Productivity together represent roughly 70% of total revenue and over 85% of gross profit dollars. As these segments grow faster than More Personal Computing, the blended gross margin naturally improves. The Microsoft 365 Copilot seat premium — a ~$30/user/month add-on with essentially zero marginal cost of delivery — is margin-accretive at the gross level.

Comparison with Palantir and Salesforce

Within enterprise software, Microsoft’s gross margin is somewhat lower than pure-play SaaS peers because of the hardware and gaming businesses. Palantir’s gross margin has held around 80% because Palantir has no hardware business at all. Salesforce runs at ~75%. Microsoft’s structural 5-8 percentage point discount to pure-play SaaS is a known and accepted feature of owning a diversified technology platform.

For AI infrastructure comparison, see Nvidia’s gross margin history — Nvidia’s data-centre GPU business commands 75–80% gross margins, which explains why Nvidia’s operating leverage has been so dramatic in the AI era.

Why Gross Margin Matters for AI Monetisation

As Microsoft deploys AI features across all its products (Copilot in Word, Excel, Teams, Azure OpenAI API, GitHub Copilot), the incremental revenue from these features flows through at the same or higher gross margins as the underlying software. An AI API call on Azure has similar infrastructure cost economics to a standard compute API call, but commands a premium price.

This means AI monetisation at Microsoft is fundamentally gross-margin-neutral or gross-margin-positive — the opposite of what happens when a company monetises AI by hiring expensive AI engineers to deliver manually-intensive AI services. See Microsoft Operating Margin for how gross margin expansion translates to operating leverage.

Frequently Asked Questions

Q: What is Microsoft’s gross margin? ~68.6% in 2025, steadily expanding as Azure and 365 mix grows.

Q: Why lower than pure SaaS? Hardware (Surface, Xbox) dilutes the blended margin — those run at 33–38%.

Q: How does it compare to Google? Microsoft’s ~70% exceeds Alphabet’s ~55%, primarily due to lower traffic acquisition costs.

Q: Will it keep expanding? Structurally yes, as AI/cloud grow faster than hardware, though heavy data-centre capex could create short-term pressure.

Related: Microsoft Gross Profit · Microsoft Operating Margin · Palantir Gross Margin · Gross Margin Glossary · Enterprise Software Sector