Microsoft had another big quarter on paper. Xbox, however, did not.
In its second quarter fiscal year 2026 (FY26 Q2) earnings report, Microsoft announced a 17% year-over-over jump in revenue to $81.3 billion, with growth once again driven by cloud and AI. Microsoft Cloud revenue hit $51.5 billion, Azure jumped 39%, and most of the company’s major business lines continued to trend in the right direction.
Xbox was the clear exception.
Xbox Revenue Fell Across The Board
Within Microsoft’s report, the company said that its gaming revenue has fallen 9% while Xbox content and services revenue fell 5% year over year. Microsoft didn’t disclose specifics on the Xbox content regarding the revenue for services like Xbox Game Pass, but did say that the decline can be attributed to last year benefiting from “strong first-party content performance”. Still, the slowdown is hard to overlook as Xbox content growth continues to cool, at least for the time being.
Hardware was an even bigger concern.
Microsoft confirmed that Xbox hardware revenue dropped 32% during the quarter. As usual, the company did not provide console sales numbers or much added context, but the direction is clear. Xbox console sales continue to slide, even as Microsoft positions the brand as more of a service-driven ecosystem than a traditional hardware platform.
Recent quarterly data shows how quickly things have changed. Xbox content and services revenue posted strong gains throughout much of FY25, including multiple quarters of double-digit growth. That momentum has now faded, with FY26 Q2 marking a shift into negative territory.
Despite the Xbox decline for the quarter, other parts of the earnings helped soften the impact. Windows OEM and Devices revenue grew 1%, while search and news advertising rose 10%, underlining just how much Xbox is lagging behind Microsoft’s other consumer-facing businesses.
For Microsoft, the overall earnings picture remains strong. For Xbox, the concerns are piling up. With hardware revenue falling sharply as the Xbox Series X|S ages out and content growth seemingly slowing, Microsoft’s long-term plan for the platform is becoming a bit murkier.
What do you think of Xbox revenue falling in FY26 Q2? Leave your thoughts down in the comments below, and join the discussion in the official Insider Gaming Discord.
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Mike has been covering the gaming industry since 2012, and has reported on some of the largest events in the industry while also working as an investigative reporter. Outside of…
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No surprise…how the current leadership stats employee is beyond me. Satya needs to finally fire Phil Spencer, Aaron Greenberg, Sarah Bond, and Matt Booty then buy Take Two Interactive. Xbox should not be a console anymore get Game Pass on PlayStation, Nintendo, and other devices.
Go to a major retailer like Target or Walmart and try to find the Xbox section.
Games in store are virtually non existent and that’s going to drive sales down. Who wants to spend $500 to $600 on hardware when the shelf of games us either empty or 1-2 years old?
At which point someone goes “Buh, buh, Steam Deck!” yeah, the Steam Deck has a great all digital platform. They have also only sold around 4-6 million units in 4 years (next month!)
A console would be ruined selling only a million units a year.
I’ve bought every X box since the original, but since they raised the prices and been selling their games on Sony, I think why buy two consoles, when I can just buy one. So next generation I’m sadly going to give X box a miss and stick to playstation. Also, I’ve recently bought a legion with steam on it, so I think I will be more than covered. R.I.P. x box
There is no reason to ever but another Xbox. As an Xbox user half of my life, all they’ve done the last ten years is shaft us and fail to admit they even made a mistake