Microsoft says gaming declines drove its only revenue drop in FY26 Q2

Microsoft just posted FY26 Q2 results, and Microsoft’s only revenue decline came from “More Personal Computing,” with the company pointing to weaker gaming results as the main drag.

Revenue across the company rose, and cloud did the heavy lifting again. Microsoft Cloud kept growing fast, and Azure growth stayed strong. The gap is now obvious: data-center is pulling in far more money than the Windows, Surface, and Xbox bucket.

More Personal Computing revenue was down 3% year over year, and Microsoft pointed at gaming as the reason why this is happening. The numbers back up the drop: overall gaming revenue fell 9%, Xbox hardware revenue dropped by a staggering 32%, and Xbox content and services fell 5%. That “content and services” line includes Game Pass, so the quarter wasn’t saved by subscriptions.

Source: Microsoft

“Xbox content and services revenue decreased 5% and 6% in constant currency and was below expectations, driven by first-party content with impact across the platform. […] Operating expenses increased 6% and 5% in constant currency, driven by the impairment charges in our gaming business.”

— Amy Hood, Microsoft CFO

Windows OEM and devices were up slightly, and search and news advertising revenue grew 10%. Microsoft basically told investors: the PC side held up, ads grew, cloud carried, but Xbox business isn’t doing great in comparison.

Xbox’s 2025 hardware strategy seemed to be selling fewer consoles. With nearly five-year-old hardware, there was no sign of a price cut for the aging architecture, and there were hardly any major first-party releases. Everything also seems to be coming to PS5 anyway, so there’s no exclusivity anymore.

Source: Windows Central , The Verge

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