Microsoft Delivers Strong Growth as Xbox Revenue and Hardware Sales Decline

Microsoft reported solid performance in its latest earnings, delivering 16% revenue growth. Cloud services and enterprise products continued to drive results, keeping the broader business on a strong trajectory despite mixed performance across divisions.

Xbox gaming revenue continues to decline

According to reporting from GameSpot, Microsoft’s gaming revenue fell 9% compared to the same period last year. Revenue from content and services, which includes Xbox Game Pass, declined by 5%, reflecting tougher comparisons against a stronger first-party release lineup in the prior year.

Microsoft said last year’s content strength heavily influenced the year-over-year drop and expects a similar single-digit decline in Q3 for the same reason.

Xbox hardware revenue dropped 32% year over year, with a 70% sales drop in 2025, extending a decline that has now lasted three consecutive financial years. The company does not expect this trend to reverse in the near term.

Rising console prices continue to weigh on demand. Higher hardware costs, driven in part by increased component prices and competition from AI-focused buyers, have pressured sales across multiple markets.

While Xbox struggles, Microsoft’s broader business remains resilient. The company recently secured a supply agreement with SK Hynix to support production of its upcoming Maia 200 chip, strengthening its long-term AI and data center strategy.

With cloud and AI driving growth and gaming under pressure, Microsoft appears increasingly aligned with a multiplatform approach for Xbox Game Studios. The strategy reflects changing market conditions as the company prioritizes scale, services, and long-term platform reach over hardware-led growth.