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

Microsoft Gross Profit: 2020–2025

Microsoft (MSFT) reported gross profit of $55.3 billion in 2025 Q4 (October–December 2025). Calendar-year 2025 gross profit totaled approximately $209.5 billion, up 15.3% from 2024. Microsoft’s gross profit trajectory reflects the sustained shift toward higher-margin cloud and software revenue, which carries significantly lower cost of goods sold than traditional hardware or on-premises licensing.

Gross profit is the most important profitability metric to watch at Microsoft because it captures the inherent economics of the software and cloud model: once infrastructure is built, incremental revenue from additional cloud customers or Microsoft 365 seats flows through at very high gross margins.

Microsoft Annual Gross Profit by Year

Source: SEC EDGAR XBRL. Calendar-year aggregates.

Cloud Mix Driving Gross Margin Expansion

Microsoft’s gross margin has expanded steadily from the low-60% range in 2020 to the low-70% range by 2025. The driver is segment mix: Azure and Microsoft 365 carry gross margins above 70%, while the More Personal Computing segment (hardware, Xbox) carries margins in the 30–40% range. As cloud revenue grows faster than hardware revenue, the blended company gross margin rises.

This dynamic is the structural thesis for Microsoft as a long-term investment: the revenue base is shifting toward its highest-margin products automatically, without requiring management to explicitly cut lower-margin lines. See Microsoft Gross Margin History for the percentage-point expansion over time.

Comparison with Pure-Play Cloud Companies

Microsoft’s gross margin of ~70% is strong for a diversified technology company but trails pure-play SaaS companies. Palantir operates at ~80% gross margin. Salesforce operates at ~75%. The difference reflects Microsoft’s hardware and gaming divisions, which structurally dilute the overall gross margin even as the cloud business itself runs at very high margins.

For context: the $57B gross profit Microsoft generated in a single quarter of 2025 Q4 exceeds the entire annual revenue of most enterprise software companies. This scale allows Microsoft to invest $10-15B per quarter in R&D and sales without meaningfully compressing margins.

Cost of Revenue Breakdown

Microsoft’s cost of revenue includes three components: server costs for Azure and Microsoft 365 (data centres, hardware refresh), cost of content for Xbox and Bing, and manufacturing costs for Surface and Xbox hardware. The data centre component — the dominant cost — scales sub-linearly with revenue because AI accelerates workload efficiency per server rack.

This sub-linear scaling is why Microsoft’s gross profit grows faster than its revenue in absolute terms even as revenue accelerates. Each incremental dollar of Azure revenue costs less to deliver than the average dollar. Compare how Meta’s gross profit scales differently — Meta’s infrastructure costs relate to ad serving rather than compute rental.

Frequently Asked Questions

Q: What is Microsoft’s gross profit margin? ~68.6% in 2025, expanding from 69.4% in 2024 as Azure mix grows.

Q: Why is Microsoft’s gross margin expanding? Cloud services (Azure, 365) carry 70%+ margins vs. hardware’s 30–40%. Growing cloud share lifts the blended rate.

Q: How does Microsoft’s gross profit compare to Alphabet? Broadly comparable in scale; Microsoft carries a higher gross margin % (~70% vs. Alphabet’s ~55%).

Q: What drives Microsoft’s cost of revenue? Primarily data-centre costs (Azure, 365), Xbox content, and Surface hardware manufacturing.

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