Microsoft (MSFT) risk factors, FY2026 10-K

Microsoft's FY2026 10-K, filed Jul 29, 2026, lists 20 risk factors in 5 groups. Against the prior year's 17: 6 new, 3 dropped, 8 substantially reworded.

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Risk factors listed
205 groups
New this year
6vs 17 last year
Dropped
3since the prior 10-K
Substantially reworded
8of those kept
Section length
12k wordsItem 1A

What the changes say

  • AI expansion now centers on accelerated datacenter, component, energy, and capital commitments before revenue.
  • Risks emphasize cloud and AI misuse, cybersecurity, source-code exposure, and expanding digital-safety obligations.
  • Competition, supply-chain constraints, regulation, and uncertain customer spending threaten adoption, growth, and margins.

What changed since the prior 10-K

New

  • NewSTRATEGIC AND COMPETITIVE RISKS

    A material part of our business involves cloud-based services available across the spectrum of computing devices. We and our competitors continue to devote significant resources to developing and deploying cloud-based strategies and services for consumers and business customers

    Cloud transition remains costly while license-based software still generates substantial revenue and competitors pursue similar models.

  • NewSTRATEGIC AND COMPETITIVE RISKS

    Making our suite of cloud-based and AI products and services platform-agnostic and maintaining the utility, compatibility, and performance of our cloud-based and AI products and services on the growing array of computing devices, including PCs, smartphones, tablets, gaming consoles, and other devices

    Platform-agnostic cloud and AI products must work across many devices, while execution failures or misuse could hurt adoption, reputation, and results.

  • NewSTRATEGIC AND COMPETITIVE RISKS

    Item 1A RISKS RELATING TO THE EVOLUTION OF OUR BUSINESS

    Large AI, software, and hardware investments may not achieve expected adoption, revenue, profitability, or historical operating margins.

  • NewOPERATIONAL RISKS

    inadequate datacenter capacity to support the delivery and continued development of our products and services. Component shortages, excess or obsolete inventory, or price reductions resulting in inventory adjustments have and may increase our cost of revenue

    Insufficient datacenter capacity and component shortages, obsolete inventory, or price cuts could constrain services and increase costs.

  • NewOPERATIONAL RISKS

    In addition to infrastructure, other products such as XBOX consoles, Surface devices, and other hardware are similarly subject to supply chain challenges and disruptions, resulting in shortages which could adversely affect our business, operations, financial condition, and results of operations

    Datacenter and hardware operations depend on scarce power, networking equipment, servers, GPUs, and third-party infrastructure exposed to supply, energy, regulatory, and geopolitical disruptions.

  • NewLEGAL, REGULATORY, AND LITIGATION RISKS

    retrieve and produce customer data in response to compulsory legal demands from law enforcement and governmental authorities are evolving and the requests we are experiencing are increasing in volume and complexity

    Increasingly complex and numerous government demands for customer data, alongside evolving digital-market regulation, could raise costs and liability.

Dropped

  • DroppedSTRATEGIC AND COMPETITIVE RISKS

    Continuing to bring to market compelling cloud-based and AI services and products that generate increasing traffic and market share

  • DroppedSTRATEGIC AND COMPETITIVE RISKS

    Continuing to enhance the attractiveness of our cloud platforms to third-party developers

  • DroppedSTRATEGIC AND COMPETITIVE RISKS

    Making our suite of cloud-based services platform-agnostic, available on a wide range of devices and ecosystems, including those of our competitors

Reworded

  • 99% rewrittenSTRATEGIC AND COMPETITIVE RISKS

    The competitive pressures described above may cause decreased sales volumes, price reductions, and/or increased operating costs, such as for research and development, marketing, and sales incentives, which could adversely affect our financial condition and results of operations

    The risk now quantifies accelerated, large-scale AI model and datacenter investments, including capital and energy needs, before expected revenue materializes.

  • 86% rewrittenSTRATEGIC AND COMPETITIVE RISKS

    Companies compete with us based on a growing variety of business models

    The risk shifts from broad cloud business-model competition and costs to AI competition from hyperscalers, open source, and frontier-model providers, plus regulation and scrutiny.

  • 62% rewrittenCYBERSECURITY, DATA PRIVACY, AND PLATFORM ABUSE RISKS

    Other digital safety abuses

    The risk adds product-design, safety-by-design, age-assurance, age-appropriate-design, and parental-control obligations, especially concerning children.

  • 34% rewrittenLEGAL, REGULATORY, AND LITIGATION RISKS

    INTELLECTUAL PROPERTY RISKS

    The risk adds unauthorized source-code disclosure, loss of trade-secret protection, and easier third-party copying of product functionality.

  • 32% rewrittenCYBERSECURITY, DATA PRIVACY, AND PLATFORM ABUSE RISKS

    Security of our information technology

    The risk expands potential unauthorized access beyond Microsoft and customer systems to partner and supplier systems and data.

  • 29% rewrittenCYBERSECURITY, DATA PRIVACY, AND PLATFORM ABUSE RISKS

    Item 1A Security of our products, services, devices, and customers’ data

    The risk clarifies that customer-data protection depends on third-party infrastructure, including software as well as hardware and other elements.

    Was: Security of our products, services, devices, and customers’ data

  • 28% rewrittenGENERAL RISKS

    Social media may increase the likelihood, speed, and magnitude of negative brand events. If our brands or reputation are damaged, it could adversely affect our business, results of operations, or ability to attract the most highly qualified employees

    The risk adds economic uncertainty, demand evolution, technology cycles, interest rates, foreign exchange, and customer-spending timing and mix as causes of delayed IT spending.

  • 25% rewrittenSTRATEGIC AND COMPETITIVE RISKS

    Competition among platform-based ecosystems

    The risk removes explicit network-scale and significant-firm competition language, emphasizing instead that competing platforms may hinder customer attraction and retention.

All 20 risk factors

Headings as the filing states them, in filing order.

STRATEGIC AND COMPETITIVE RISKS

  1. 01Competition in the technology sector
  2. 02Competition among platform-based ecosystems25% rewritten
  3. 03Companies compete with us based on a growing variety of business models86% rewritten
  4. 04A material part of our business involves cloud-based services available across the spectrum of computing devices. We and our competitors continue to devote significant resources to developing and deploying cloud-based strategies and services for consumers and business customersNew
  5. 05Other competitors develop and offer free applications, online services, and content, and make money by selling third-party advertising. Advertising revenue funds development of products and services these competitors provide to users at little or no cost, competing directly with our revenue-generating products
  6. 06The competitive pressures described above may cause decreased sales volumes, price reductions, and/or increased operating costs, such as for research and development, marketing, and sales incentives, which could adversely affect our financial condition and results of operations99% rewritten
  7. 07Making our suite of cloud-based and AI products and services platform-agnostic and maintaining the utility, compatibility, and performance of our cloud-based and AI products and services on the growing array of computing devices, including PCs, smartphones, tablets, gaming consoles, and other devicesNew
  8. 08Item 1A RISKS RELATING TO THE EVOLUTION OF OUR BUSINESSNew

CYBERSECURITY, DATA PRIVACY, AND PLATFORM ABUSE RISKS

  1. 09Security of our information technology32% rewritten
  2. 10Item 1A Security of our products, services, devices, and customers’ data29% rewritten
  3. 11Development and deployment of defensive measures
  4. 12Advertising, professional, marketplace, and gaming platform abuses
  5. 13Other digital safety abuses62% rewritten

OPERATIONAL RISKS

  1. 14inadequate datacenter capacity to support the delivery and continued development of our products and services. Component shortages, excess or obsolete inventory, or price reductions resulting in inventory adjustments have and may increase our cost of revenueNew
  2. 15In addition to infrastructure, other products such as XBOX consoles, Surface devices, and other hardware are similarly subject to supply chain challenges and disruptions, resulting in shortages which could adversely affect our business, operations, financial condition, and results of operationsNew

LEGAL, REGULATORY, AND LITIGATION RISKS

  1. 16retrieve and produce customer data in response to compulsory legal demands from law enforcement and governmental authorities are evolving and the requests we are experiencing are increasing in volume and complexityNew
  2. 17INTELLECTUAL PROPERTY RISKS34% rewritten

GENERAL RISKS

  1. 18Data security breaches, cybersecurity incidents, responsible AI failures, compliance failures, or actions of partners or individual employees
  2. 19Social media may increase the likelihood, speed, and magnitude of negative brand events. If our brands or reputation are damaged, it could adversely affect our business, results of operations, or ability to attract the most highly qualified employees28% rewritten
  3. 20Challenging economic conditions also may impair the ability of our customers to pay for products and services they have purchased. As a result, allowances for doubtful accounts and write-offs of accounts receivable may increase

Other Microsoft 10-Ks

  • FY2025 10-K risk factors
    17 risks

    Microsoft faces intense competition across platforms, cloud services, and AI development, alongside major cybersecurity and intellectual property protection challenges.

    Filed Jul 30, 2025

About this page

The headings are the filing's own. The one-line readings and the overview are automated and can be wrong: read Item 1A of the 10-K for the exact wording.