Microsoft reported a blockbuster second quarter for its fiscal year 2026 on Wednesday, but for the Xbox gaming community, the results were a bit of a boss fight the company wasn’t quite leveled for.
While the tech giant’s overall revenue surged 17% to $81.3 billion—fueled by a massive $50 billion milestone in cloud revenue—the gaming division saw declines across nearly every significant metric.
According to the company’s financial statement for the quarter ending Dec. 31, 2025, total gaming revenue fell 9% year-over-year. The most striking figure came from the hardware side, where Xbox console and accessory revenue plummeted by 32%.
Analysts suggest this sharp decline follows a series of price hikes for the Xbox Series X|S and a marketing strategy, “This Is An Xbox,” which may have inadvertently signaled to consumers that physical consoles are no longer a necessity for the ecosystem.
For the first time in over a year, Xbox content and services also took a hit, declining 5% (6% in constant currency),. Microsoft Chief Financial Officer Amy Hood noted that gaming results were “below expectations,” largely due to a dip in first-party content performance compared to a very strong prior year. Insiders point to Call of Duty: Black Ops 7 struggling to match the massive commercial footprint left by 2025’s Black Ops 6.
Silver Linings and Streaming Records It wasn’t all bad news for Team Green. During the quarterly webcast, CEO Satya Nadella highlighted that the company saw record numbers for PC players and hours spent streaming games on Xbox.
The broader “More Personal Computing” segment, which includes Xbox, Windows, and Surface, brought in $14.3 billion. While this was a 3% decrease for the segment overall, Microsoft is clearly playing a long game that prioritizes player engagement and ecosystem reach over traditional console sales.
Looking ahead to the third fiscal quarter, Microsoft expects the decline to persist in the mid-to-single digits, though they anticipate this will be partially offset by growth in Xbox Game Pass.
The company is banking on a heavy-hitting 2026 software lineup to regain its momentum. Upcoming titles such as the Fable reboot, Forza Horizon 6, and the highly anticipated Halo: Campaign Evolved remake are expected to be the primary drivers for a division currently looking to find its footing after a cooling-off period.
For now, Microsoft remains an AI and cloud powerhouse, with its partnership with OpenAI contributing to a massive $625 billion commercial backlog. Whether that enterprise success can eventually translate back into a win for the Xbox console remains to be seen.
