Microsoft’s 32% Profit Growth: Why the Adjusted Rate Is 18%

Microsoft’s October 28, 2026 results for the quarter ended September 30 report net-income growth of 32% under GAAP and 18% on its adjusted basis. Both describe the same quarter. The difference becomes clearer when you inspect the comparison year as well as the latest profit.

Microsoft Investor Relations: FY27 Q1 results and reconciliation

Follow the adjustment in both columns

In millions of dollars, Microsoft reports current GAAP net income of 36,629 and adjusted net income of 36,422. The corresponding prior-year figures are 27,747 and 30,833. Its OpenAI investment effects increased current profit by 207 and reduced prior-year profit by 3,086.

Removing those effects therefore lowers the current figure but raises the earlier comparison base. The two growth calculations are approximately 36,629 ÷ 27,747 − 1 = 32.0%, and 36,422 ÷ 30,833 − 1 = 18.1%. These calculations use the release’s figures and explain its rounded headline rates.

Why a small current adjustment can accompany a large rate difference

A year-over-year percentage has two inputs: the latest amount and the earlier amount used as its denominator. Looking only at the current adjustment leaves half the comparison unexplained. A changed starting point can materially alter the percentage even when the latest two amounts are close.

Microsoft identifies the adjustment as the impact from investments in OpenAI and presents its non-GAAP measure alongside GAAP. This reconciliation does not measure the profitability of an individual AI product, and neither growth rate by itself establishes future stock returns.

Try a fictional comparison

Imagine a company with underlying profit of 100 units in Year 1 and 120 in Year 2. For this exercise alone, suppose a separately identified investment loss of 20 lowers Year 1’s reported profit to 80, while an investment gain of 10 raises Year 2’s reported profit to 130. These are invented teaching numbers, not Microsoft results.

Reported growth is 130 ÷ 80 − 1, or 62.5%. Excluding the specified investment effects in both years gives 120 ÷ 100 − 1, or 20%. There is no arithmetic conflict: the calculations answer questions with different definitions. Removing only Year 2’s gain would give 120 ÷ 80 − 1 = 50%, which mixes the two bases and fails to reproduce the intended adjusted comparison.

Build a four-cell reading check

When reading an earnings headline, write down four cells: current reported profit, prior reported profit, current adjusted profit and prior adjusted profit. Label the period, currency and units above them. Keep net income separate from earnings per share so that an amount for the whole company is not accidentally compared with an amount per share.

Next, read which items the company removes and the sign of each adjustment. Recalculate each growth rate using matching definitions. If your result differs, check rounding, the period and whether the source uses constant currency before assuming that the headline is wrong.

For the separate profit-versus-EPS distinction, read how a changing share count alters per-share growth in Lear's results.

Use the bridge to ask a better question

The useful follow-up is which part of the change comes from the business measure you want to study and which part comes from the comparison’s definition. Preserve both figures in your notes. A reconciliation makes a percentage easier to interpret; it does not replace a fuller review of revenue, expenses, cash flows and the company’s stated accounting choices.