Principles of Consolidation The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest (“VIEs”) and of which we are the primary beneficiary, including certain entities in India and certain entities that support our healthcare services and production and distribution of video content. We are the primary beneficiary if we have the power to direct the activities of the VIE and absorb the losses or benefits that would be significant to the VIE. Intercompany balances and transactions between consolidated entities are eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, collectability of receivables, commitments and contingencies, impairment of property and equipment and operating leases, income tax --- Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $55.6 billion as of December 31, 2025 and June 30, 2026. Accumulated amortization associated with finance leases was $40.4 billion and $39.8 billion as of December 31, 2025 and June 30, 2026. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): --- ___________________ (1)Includes property and equipment added under finance leases of $21 million and $235 million in Q2 2025 and Q2 2026, and $75 million and $472 million for the six months ended June 30, 2025 and 2026. (2)Includes property and equipment added under finance leases of $916 million and $328 million in Q2 2025 and Q2 2026, and $916 million and $1.7 billion for the six months ended June 30, 2025 and 2026. --- Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates and energy prices, changes in global economic conditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, the amount that Amazon.com invests in new business oppo

Principles of Consolidation The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest (“VIEs”) and of which we are the primary beneficiary, including certain entities in India and certain entities that support our healthcare services and production and distribution of video content. We are the primary beneficiary if we have the power to direct the activities of the VIE and absorb the losses or benefits that would be significant to the VIE. Intercompany balances and transactions between consolidated entities are eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, collectability of receivables, commitments and contingencies, impairment of property and equipment and operating leases, income tax --- Unearned Revenue Unearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the service period. Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships. Our total unearned revenue as of December 31, 2025 was $25.0 billion, of which $15.2 billion was recognized as revenue during the six months ended June 30, 2026. Included in “Other long-term liabilities” on our consolidated balance sheets was $4.4 billion and $4.5 billion of unearned revenue as of December 31, 2025 and June 30, 2026. Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future services that we expect to fulfill but have not yet been recognized in our financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were approximately $496 billion as of June 30, 2026. The weighted-average remaining life of our long-term contracts is 6.4 years. The amount and timing of revenue recognition will be driven by customer usage and our performance in accordance with contractual obligations, --- Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in Q2 2026 and for the six months ended June 30, 2026, compared to the comparable prior year periods, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by operational efficiencies. Cost of sales in Q2 2026 includes tariff refunds received under the IEEPA. Changes in foreign exchange rates did not significantly impact cost of sales for Q2 2026, but increased cost of sales by $1.8 billion for the six months ended June 30, 2026. Shipping costs were $23.4 billion and $27.9 billion in Q2 2025 and Q2 2026, and $45.9 billion and $53.6 billion for the six months ended June 30, 2025 and 2026. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to con --- Guidance We provided guidance on July 30, 2026, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of July 30, 2026, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rat

Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $55.6 billion as of December 31, 2025 and June 30, 2026. Accumulated amortization associated with finance leases was $40.4 billion and $39.8 billion as of December 31, 2025 and June 30, 2026. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): --- Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates and energy prices, changes in global economic conditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, the amount that Amazon.com invests in new business oppo

Non-Marketable Equity Investments Under Equity Method Our non-marketable equity method investments include an arrangement, entered into in October 2025, to co-develop a data center campus in Louisiana (the Venture), in which we hold a 20% membership interest. This Venture provides strategic optionality and flexibility, which we expect will enable us to effectively meet future infrastructure capacity needs as AI markets and technologies develop. The parties have committed to fund their respective pro rata share of approximately $27 billion in total estimated development costs. Our lease agreements with the Venture, which cover the right to use properties on the data center campus, will commence in 2029 and have an aggregate initial lease commitment of approximately $12.31 billion. Each leased property has an initial four-year lease term and options to renew for a total lease period of up to 20 years. In addition, we have provided residual value guarantees (RVG) with an aggregate threshold of approximately $28 billion that decreases over time. If we decide to terminate or not renew a lease, and if certain other conditions are met, our maximum RVG payment would equal 17 --- Depreciation expense on property and equipment was $6.00 billion and $4.28 billion for the three months ended June 30, 2026 and 2025, respectively, and $11.67 billion and $8.12 billion for the six months ended June 30, 2026 and 2025, respectively. Within property and equipment, our servers and network assets depreciation expense was $4.62 billion and $3.12 billion for the three months ended June 30, 2026 and 2025, respectively, and $9.01 billion and $5.74 billion for the six months ended June 30, 2026 and 2025, respectively. --- In March 2026, we approved a plan to dispose of certain data center assets with a carrying value of $1.48 billion, consisting mostly of construction in progress and land. We expect to dispose of these assets in the third quarter of 2026 through a contribution to a third party for the purpose of co-developing data centers in El Paso, Texas. As of June 30, 2026, total held-for-sale assets, net, were $2.03 billion, included within prepaid expenses and other current assets on our condensed consolidated balance sheets. See Note 13 — Subsequent Event for additional information. 18 --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of June 30, 2026. These lease obligations were approximately $278.99 billion, consisting of data centers, colocations, and certain network infrastructure, which will commence during the remainder of 2026 through 2036 with lease terms ranging from greater than one year to 30 years. In July 2026, we entered into additional data center leases with lease obligations of approximately $68 billion, which are expected to commence in 2027 and 2028, with lease terms of 18 to 20 years. --- As of June 30, 2026, we had $349.31 billion of non-cancelable contractual commitments, comprising both short-term and long-term arrangements. These commitments mostly relate to third-party cloud capacity arrangements and investments in servers and network infrastructure, data centers, and consumer hardware products in Reality Labs, with approximately $53.52 billion and $81.65 billion due in 2026 and 2027, respectively. In addition, as of June 30, 2026, we have contingent obligations to purchase up to $14.72 billion of cloud capacity over a five-year period, which may be reduced if the cloud service provider is able to sell such capacity to other customers. For agreements with variable terms, we do not estimate the total obligation beyond minimum quantities and/or pricing, as of the reporting date. --- In July 2026, we entered into an exclusivity agreement to co-develop a data center campus in El Paso, Texas, through a venture in which we would hold a 20% membership interest. The transaction is subject to the execution of definitive a

Non-Marketable Equity Investments Under Equity Method Our non-marketable equity method investments include an arrangement, entered into in October 2025, to co-develop a data center campus in Louisiana (the Venture), in which we hold a 20% membership interest. This Venture provides strategic optionality and flexibility, which we expect will enable us to effectively meet future infrastructure capacity needs as AI markets and technologies develop. The parties have committed to fund their respective pro rata share of approximately $27 billion in total estimated development costs. Our lease agreements with the Venture, which cover the right to use properties on the data center campus, will commence in 2029 and have an aggregate initial lease commitment of approximately $12.31 billion. Each leased property has an initial four-year lease term and options to renew for a total lease period of up to 20 years. In addition, we have provided residual value guarantees (RVG) with an aggregate threshold of approximately $28 billion that decreases over time. If we decide to terminate or not renew a lease, and if certain other conditions are met, our maximum RVG payment would equal 17 --- In March 2026, we approved a plan to dispose of certain data center assets with a carrying value of $1.48 billion, consisting mostly of construction in progress and land. We expect to dispose of these assets in the third quarter of 2026 through a contribution to a third party for the purpose of co-developing data centers in El Paso, Texas. As of June 30, 2026, total held-for-sale assets, net, were $2.03 billion, included within prepaid expenses and other current assets on our condensed consolidated balance sheets. See Note 13 — Subsequent Event for additional information. 18 --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of June 30, 2026. These lease obligations were approximately $278.99 billion, consisting of data centers, colocations, and certain network infrastructure, which will commence during the remainder of 2026 through 2036 with lease terms ranging from greater than one year to 30 years. In July 2026, we entered into additional data center leases with lease obligations of approximately $68 billion, which are expected to commence in 2027 and 2028, with lease terms of 18 to 20 years. --- Our gross unrecognized tax benefits were $18.74 billion and $16.45 billion as of June 30, 2026 and December 31, 2025, respectively. These unrecognized tax benefits are primarily related to the uncertainties with our research tax credits and transfer pricing with our foreign subsidiaries, which include licensing of intellectual property, providing services and other transactions. If the gross unrecognized tax benefits as of June 30, 2026 were realized in a future period, this would result in a tax benefit of $12.73 billion within our provision for income taxes at such time. The amount of interest and penalties accrued was $2.97 billion and $2.60 billion as of June 30, 2026 and December 31, 2025, respectively. We expect to continue to accrue unrecognized tax benefits for certain recurring tax positions. --- We are also making significant investments in our RL efforts, including developing virtual and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our RL investments include expenses relating to technology development across these efforts. Many of our RL investments are directed toward long-term, cutting-edge research and development for products that may only be fully realized in the next decade. During the six months ended June 30, 2026, our RL segment reduced our overall operating profit by approximately $8.65 billion, and we expect our full-year 2026 RL operating losses to remain similar to 2025. 34 --- Advertising revenue in the three and six months ended June 30, 2026 increased $12.80 bill

Our estimates for revenue by user location, as well as year-over-year percentage changes in ad impressions delivered and the average price per ad by user location, are also affected by data limitations and other challenges in measuring user geography. Our data regarding the geographic location of our users is estimated based on a number of factors, such as the user's IP address and self-disclosed location. These factors may not always accurately reflect the user's actual location. For example, a user may appear to be accessing our products from the location of the proxy server that the user connects to rather than from the user's actual location. The methodologies used to measure our metrics are also susceptible to algorithm or other technical errors. 5 --- Non-Marketable Equity Investments Under Equity Method Our non-marketable equity method investments include an arrangement, entered into in October 2025, to co-develop a data center campus in Louisiana (the Venture), in which we hold a 20% membership interest. This Venture provides strategic optionality and flexibility, which we expect will enable us to effectively meet future infrastructure capacity needs as AI markets and technologies develop. The parties have committed to fund their respective pro rata share of approximately $27 billion in total estimated development costs. Our lease agreements with the Venture, which cover the right to use properties on the data center campus, will commence in 2029 and have an aggregate initial lease commitment of approximately $12.31 billion. Each leased property has an initial four-year lease term and options to renew for a total lease period of up to 20 years. In addition, we have provided residual value guarantees (RVG) with an aggregate threshold of approximately $28 billion that decreases over time. If we decide to terminate or not renew a lease, and if certain other conditions are met, our maximum RVG payment would equal 17 --- any shortfall between the fair value at that time and the RVG threshold for that property. RVG payments are not probable, and therefore no liability has been recorded to date. Significant judgment is required to identify the activities that most significantly impact the Venture's economic performance based upon the purpose and design of the entity. This judgment included, but was not limited to, considering future conditions that may impact the fair value of the Venture's long-lived assets (including expectations of payments under the RVG) or the Venture's ability to generate cash flows. On the basis of analyses performed, decisions pertaining to remarketing the data center campus, including but not limited to, negotiations with future lease tenants and individual property sales, were determined to have the most significant impact on the Venture's economic performance. As we do not have the power to direct the activities that most significantly impact the Venture's economic performance, we are not the primary beneficiary and, therefore, do not consolidate the variable interest entity (VIE). Our ongoing involvement with the VIE includes providing construction management, administrat --- June 30, 2026December 31, 2025 Land$3,667 $3,687  Servers and network assets119,683 98,040  Buildings61,037 55,568  Leasehold improvements8,464 8,346  Equipment and other10,209 9,377  Finance lease right-of-use assets9,467 8,187  Construction in progress (1) 80,345 50,521  Property and equipment, gross292,872 233,726  Less: Accumulated depreciation(67,148)(57,326) Property and equipment, net$225,724 $176,400 --- ____________________________________ (1)Construction in progress includes costs mostly related to construction of data centers, servers and network infrastructure. --- Depreciation expense on property and equipment was $6.00 billion and $4.28 billion for the three months ended June 30, 2026 and 2025, respectively, and $11.67 billion and $8.12 billion for the six months ended June 30, 2026 and 2025, respecti

Metrics We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements (Part II, Item 8 of this Form 10-K). Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and growth comparisons relate to the corresponding period of last fiscal year. In the first quarter of fiscal year 2026, we made updates to our metrics to align with how we manage and monitor certain businesses. As part of these updates, Microsoft 365 Consumer subscribers was removed as a metric. Commercial Our commercial business primarily consists of Server products and cloud services, Microsoft 365 Commercial products and cloud services, the commercial --- Adjusted net income and adjusted diluted earnings per share (“EPS”) are non-GAAP financial measures. These non-GAAP financial measures exclude net gains and losses from investments in OpenAI. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results. Fiscal Year 2026 Compared with Fiscal Year 2025 Revenue increased $50.1 billion or 18% driven by growth in Microsoft Cloud. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue decreased driven by XBOX (formerly Gaming), offset in part by growth in Search advertising. Cost of revenue increased $18.5 billion or 21% driven by growth in Microsoft Cloud. Gross margin increased $31.6 billion or 16% with growth across each of our segments. •Gross margin percentage decreased slightly driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains across the Microsoft Cloud. --- Operating income increased $14.1 billion or 20%. •Cost of revenue increased $2.6 billion or 12% driven by investments in AI infrastructure to support Microsoft 365 Copilot seat and usage growth. --- •Gross margin increased $16.6 billion or 17% driven by growth in Microsoft 365 Commercial cloud. Gross margin percentage increased slightly primarily driven by efficiency gains in Microsoft 365 Commercial cloud, offset in part by continued investments in AI infrastructure and growing AI product usage. --- Revenue, gross margin, and operating income included a favorable foreign currency impact of 2%, 3%, and 3%, respectively. Intelligent Cloud Revenue increased $31.5 billion or 30%. •Server products and cloud services revenue increased $31.0 billion or 31% driven by Azure and other cloud services. Azure and other cloud services revenue grew 41% driven by demand for services across the platform with continued growth across all workloads. Server products revenue increased 1% primarily driven by higher purchases of licenses running in multi-cloud environments, offset in part by continued customer shift to cloud. --- Operating income increased $12.4 billion or 28%. •Cost of revenue increased $17.7 billion or 44% driven by investments in AI infrastructure to support growing customer demand. --- •Gross margin increased $13.8 billion or 21% driven by growth in Azure. Gross margin percentage decreased driven by the continued investments in AI infrastructure as well as sales mix shift to Azure, offset in part by efficiency gains in Azure. --- LIQUIDITY AND CAPITAL RESOURCES We expect existing cash, cash equivalents, short-term investments, cash flow

We returned $10.2 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2026. Refer to Note 15 – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding share repurchases and dividends. --- ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K). This section generally discusses the results of our operations for the year ended June 30, 2026 compared to the year ended June 30, 2025. For a discussion of the year ended June 30, 2025 compared to the year ended June 30, 2024, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, 2025. OVERVIEW Microsoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more. We c --- Adjusted net income and adjusted diluted earnings per share (“EPS”) are non-GAAP financial measures. These non-GAAP financial measures exclude net gains and losses from investments in OpenAI. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results. Fiscal Year 2026 Compared with Fiscal Year 2025 Revenue increased $50.1 billion or 18% driven by growth in Microsoft Cloud. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue decreased driven by XBOX (formerly Gaming), offset in part by growth in Search advertising. Cost of revenue increased $18.5 billion or 21% driven by growth in Microsoft Cloud. Gross margin increased $31.6 billion or 16% with growth across each of our segments. •Gross margin percentage decreased slightly driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains across the Microsoft Cloud. --- Reportable Segments Fiscal Year 2026 Compared with Fiscal Year 2025 Productivity and Business Processes Revenue increased $19.2 billion or 16%. •Microsoft 365 Commercial products and cloud services revenue increased $14.2 billion or 16%. Microsoft 365 Commercial cloud revenue grew 17% with growth in revenue per user driven by Microsoft 365 Copilot and Microsoft 365 E5. Microsoft 365 Commercial seats grew 6% driven by small and medium businesses and frontline worker offerings. Microsoft 365 Commercial products revenue grew 13% driven by growth in the Windows Commercial on-premises components of Microsoft 365 suite sales, as well as an increase in Office 2024 transactional purchasing. --- Research and development expenses include payroll, stock-based compensation expense, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include technology development costs, including AI training and other infrastructure costs, third-party development and programming costs, and the depreciation and amortization of assets used to conduct research and development. Fiscal Year 2026 Compared with Fiscal Year 2025 Research and development expenses increased $3.1 billion or 9% driven by continued investments in compute capacity, AI talent, and data to support product develop

We believe our server products provide customers with advantages in performance, total costs of ownership, and productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability. Our Enterprise and partner services business competes with a wide range of companies that provide strategy and business planning, application development, and infrastructure services, including multinational consulting firms and small niche businesses focused on specific technologies. More Personal Computing Our More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises: •Windows and Devices, including Windows OEM licensing (Windows Pro and non-Pro licenses sold through the OEM channel) and Devices, comprising Surface and PC accessories. --- ITEM 2. PROPERTIES Our corporate headquarters are located in Redmond, Washington. We have approximately 14 million square feet of space located in King County, Washington that is used for engineering, sales, marketing, and operations, among other general and administrative purposes. These facilities include approximately 12 million square feet of owned space situated on approximately 520 acres of land we own at our corporate headquarters, and approximately 2 million square feet of space we lease. We own and lease other facilities domestically and internationally, primarily for offices, datacenters, and research and development. The largest owned international properties include space in the following locations: China, India, Ireland, the Netherlands, and Sweden. The largest leased international properties include space in the following locations: Australia, Canada, China, France, Germany, India, Ireland, Japan, the Netherlands, and the United Kingdom. The table below shows a summary of the square footage of our properties owned and leased domestically and internationally as of June 30, 2026: --- Metrics We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements (Part II, Item 8 of this Form 10-K). Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and growth comparisons relate to the corresponding period of last fiscal year. In the first quarter of fiscal year 2026, we made updates to our metrics to align with how we manage and monitor certain businesses. As part of these updates, Microsoft 365 Consumer subscribers was removed as a metric. Commercial Our commercial business primarily consists of Server products and cloud services, Microsoft 365 Commercial products and cloud services, the commercial --- Operating expenses increased $4.9 billion or 7% driven by continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio, impairment and other related expenses in our XBOX business, investments in commercial sales, and higher Copilot advertising expenses. Operating income increased $26.7 billion or 21% driven by growth in Productivity and Business Processes and Intelligent Cloud. Revenue and operating income both included a favorable foreign currency impact of 2%. --- •Operating expenses increased $2.5 billion or 9% driven by continued investments in research and development compute capacity, AI talent, and data to support product

As of June 30, 2026, we have entered into leases, primarily related to data centers, that have not yet commenced with future lease payments of $85.2 billion that are not yet recorded. These leases will commence between 2026 and 2031 with non-cancelable lease terms between one and 26 years. Additionally, in June 2026, we entered into a short-term lease agreement with a non-cancelable commitment of approximately $5.8 billion, which will commence in the third quarter of 2026. --- Note 5. Variable Interest Entities Consolidated VIEs We consolidate VIEs in which we hold a variable interest and are the primary beneficiary. The results of operations and financial position of these VIEs are included in our consolidated financial statements. Unconsolidated VIEs We hold various forms of interests in VIEs, including certain of our investments in private companies and renewable energy entities, certain leases and credit backstops with data center entities, and certain backstops with energy infrastructure entities. Because we have determined that we do not direct the activities that most significantly impact the economic performance of these entities, we are not the primary beneficiary. Therefore, these VIEs are not consolidated within our financial statements. Our investments in private companies and renewable energy VIEs are primarily accounted for as non-marketable securities under the measurement alternative or the equity method. The carrying value of these investments are included within non-marketable securities on our Consolidated Balance Sheets. See Note 3 for further details on investments. The maximum exposure to these VIEs is generally limited to the c --- Intersect Acquisition On March 10, 2026, we completed our acquisition of Intersect, a developer of renewable energy, for $5.9 billion, after purchase price adjustments. This acquisition enables acceleration of data center capacity and energy development. Intersect is a VIE and we have determined we are the primary beneficiary. Following the close of the acquisition, the financial results are included in our consolidated financial statements and are allocated to our segments. The final purchase price was allocated as follows (in millions): --- (1)Goodwill has been allocated to Google Services and Google Cloud segments and primarily attributable to synergies expected to arise after the acquisition. Goodwill is not deductible for tax purposes. `(2)    Includes $410 million of acquired cash. Pending Divestiture In March 2026, we entered into a definitive agreement to contribute our ownership interest in GFiber, a wholly owned subsidiary, into a newly formed entity. Upon closing, we expect to receive $1.5 billion in cash, a $2.0 billion note receivable, and a 49.99% equity interest. The remaining interest is expected to be accounted for as an unconsolidated VIE under the equity method of accounting, as we will no longer be the primary beneficiary. The transaction is expected to close in late 2026. GFiber meets the criteria for held for sale classification. No impairment loss was recognized upon initial classification as held for sale and we ceased depreciation of the related long-lived assets. Held for sale assets primarily consist of property and equipment of $7.1 billion, which is included in other current assets in our Consolidated Balance Sheet as of June 30, 2026. The operating results of GFiber remain included within t --- Note 10. Commitments and Contingencies Commitments We have contractual obligations from contracts with remaining terms greater than one year primarily consisting of certain long-term supply agreements to secure future production capacity for technical infrastructure and inventory components. In addition, we have commitments for certain energy service agreements to secure energy for data center usage, and certain content licensing agreements. As of June 30, 2026, expected future fixed or guaranteed commitments under these agreements were $707.

(1)    Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas"). Revenue Backlog As of June 30, 2026, we had $519.5 billion of remaining performance obligations (“revenue backlog”), of which $513.9 billion related to Google Cloud. Revenue backlog represents commitments in customer contracts that have not yet been recognized as revenue. We expect to recognize just over 50% of the revenue backlog as revenues over the next 24 months with the remainder to be recognized thereafter. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by contract duration, our ability to deliver in accordance with relevant contract terms, and when our customers utilize services. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods and excludes cancellable contracts and payments we make to our customers not expected to be in exchange for distinct goods and services. In the first quarter of 2026, we elected to change our reporting of revenue backlog to also include contracts with an original expected term of o --- (1)Goodwill has been allocated to Google Services and Google Cloud segments and primarily attributable to synergies expected to arise after the acquisition. Goodwill is not deductible for tax purposes. `(2)    Includes $410 million of acquired cash. Pending Divestiture In March 2026, we entered into a definitive agreement to contribute our ownership interest in GFiber, a wholly owned subsidiary, into a newly formed entity. Upon closing, we expect to receive $1.5 billion in cash, a $2.0 billion note receivable, and a 49.99% equity interest. The remaining interest is expected to be accounted for as an unconsolidated VIE under the equity method of accounting, as we will no longer be the primary beneficiary. The transaction is expected to close in late 2026. GFiber meets the criteria for held for sale classification. No impairment loss was recognized upon initial classification as held for sale and we ceased depreciation of the related long-lived assets. Held for sale assets primarily consist of property and equipment of $7.1 billion, which is included in other current assets in our Consolidated Balance Sheet as of June 30, 2026. The operating results of GFiber remain included within t --- Note 10. Commitments and Contingencies Commitments We have contractual obligations from contracts with remaining terms greater than one year primarily consisting of certain long-term supply agreements to secure future production capacity for technical infrastructure and inventory components. In addition, we have commitments for certain energy service agreements to secure energy for data center usage, and certain content licensing agreements. As of June 30, 2026, expected future fixed or guaranteed commitments under these agreements were $707.0 billion, the significant majority of which related to long-term supply agreements. We expect contractual commitments under the long-term supply agreements and content licenses to generally be fulfilled through 2030. The energy service agreements include terms ranging from two to 26 years, with obligations through 2054, and generally include take-or-pay provisions for minimum quantities of energy supply and substantive termination fees. Financial Guarantees 30 --- Note 13. Compensation Plans Stock-Based Compensation For the three months ended June 30, 2025 and 2026, total stock-based compensation (SBC) expense was $6.0 billion and $8.0 billion, including amounts associated with awards we expect to settle in Alphabet stock of $5.8 billion and $7.6 billion, respectively. For the six months ended June 30, 2025 and 2026, total SBC expense was $11.5 billion and $15.2 billion, including amounts associated with awards we expect to settle in Alphabet stock of $11.1 billion and $14.1 billion, respectively. Stock-Based Awar

Derivative Financial Instruments We utilize derivative instruments to manage risks relating to our ongoing business operations, including foreign currencies, interest rates, commodity prices, credit risk, and market prices of certain marketable equity securities. These derivatives are primarily classified within Level 2 of the fair value hierarchy. We also enter into derivatives as a result of agreements with certain third parties to backstop certain payment obligations related to data centers, which we account for as credit derivatives. Additionally, a certain strategic investment includes forward funding commitments that are accounted for as equity derivatives, as they include rights to participate in future capital funding, the exercise of which is contingent upon the achievement of specified operational and financial milestones. These credit and equity derivatives are classified within Level 3 of the fair value hierarchy. Our valuation methods include probability-weighted expected return models, which may include a combination of observable and unobservable inputs, including counterparty risk, credit default rates, risk-free rates, and our contractual rights and obligations und --- Note 4. Leases We have entered into operating and finance lease agreements primarily for data centers, land, and offices throughout the world with varying lease terms. 22 --- As of June 30, 2026, we have entered into leases, primarily related to data centers, that have not yet commenced with future lease payments of $85.2 billion that are not yet recorded. These leases will commence between 2026 and 2031 with non-cancelable lease terms between one and 26 years. Additionally, in June 2026, we entered into a short-term lease agreement with a non-cancelable commitment of approximately $5.8 billion, which will commence in the third quarter of 2026. --- Note 5. Variable Interest Entities Consolidated VIEs We consolidate VIEs in which we hold a variable interest and are the primary beneficiary. The results of operations and financial position of these VIEs are included in our consolidated financial statements. Unconsolidated VIEs We hold various forms of interests in VIEs, including certain of our investments in private companies and renewable energy entities, certain leases and credit backstops with data center entities, and certain backstops with energy infrastructure entities. Because we have determined that we do not direct the activities that most significantly impact the economic performance of these entities, we are not the primary beneficiary. Therefore, these VIEs are not consolidated within our financial statements. Our investments in private companies and renewable energy VIEs are primarily accounted for as non-marketable securities under the measurement alternative or the equity method. The carrying value of these investments are included within non-marketable securities on our Consolidated Balance Sheets. See Note 3 for further details on investments. The maximum exposure to these VIEs is generally limited to the c --- financial milestones through 2030, which is accounted for as an equity derivative. See Note 3 for further details on derivatives. Leases with data center leasing VIEs are accounted for as finance leases and are included within total lease obligations disclosed in Note 4. The maximum exposure arising from leases with VIEs is limited to the net carrying value of commenced finance lease assets, plus the undiscounted future obligations for leases that have not yet commenced. See Note 4 for further details on leases. Credit backstops we have provided to data center VIEs are accounted for as credit derivatives. The maximum exposure arising from credit backstops with VIEs is limited to the financial risk over the remaining period of the arrangements, as reflected by the credit derivative notional value. See Note 3 for further details on credit derivatives. Backstop agreements we have provided to certain energy infr

Oracle Cloud Operations Oracle Cloud Operations deliver our Oracle Cloud offerings to customers through a secure, reliable, scalable, enterprise grade cloud infrastructure platform managed by Oracle employees within a global network of data centers. The Oracle Cloud enables secure and isolated cloud-based instances for each of our customers to access the functionality of Oracle Cloud offerings via a broad spectrum of devices. Oracle Cloud Operations leverage automated software tools to enable the rapid delivery of the latest cloud technology capabilities to the Oracle Cloud as they become available and provide Oracle customers access to the latest Oracle releases. We have invested in the rapid expansion of the Oracle Cloud by increasing existing data center capacity and adding data centers in new geographic locations to meet current and expected customer demand. We expect this trend will continue. Manufacturing We rely on third-party manufacturing partners to produce most of our hardware products that we market and sell to customers and utilize internally to deliver Oracle Cloud offerings, and we distribute most of our hardware products from these partners’ facilities. Our manufa --- PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the New York Stock Exchange under the symbol “ORCL.” According to the records of our transfer agent, we had 6,219 stockholders of record as of May 31, 2026. For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report. Stock Repurchase Program Our Board has approved a program for us to repurchase shares of our common stock. As of May 31, 2026, approximately $6.3 billion remained available for stock repurchases pursuant to our stock repurchase program. There was no stock repurchase activity for the three months ended May 31, 2026. Our stock repurchase authorization does not have an expiration date and the pace of any future repurchase activity will depend on factors such as our working capital needs, our cash requirements for capital expenditures, acquisitions and dividend payments, our debt repayment obligations or repurchases of our debt, our stock price and economic and market conditions. Our stock repurchases may be effected from time to time through open market purchases or pursuant to --- relative to fiscal 2025. Our cloud and software expenses have grown in recent periods, and we expect this trend to continue during fiscal 2027 and in the next few fiscal years as we increase our existing data center capacity and establish data centers in new geographic locations in order to meet current and expected customer demand. Excluding the effects of currency rate fluctuations, our cloud and software business’ total margin increased in fiscal 2026 relative to fiscal 2025 due to increases in total revenues for this business as discussed above. Total margin as a percentage of revenues in constant currency decreased in fiscal 2026 relative to fiscal 2025 due to an increase in total expenses driven by higher infrastructure expenses to support growth in our cloud infrastructure offering. Hardware Business --- Working capital: The increase in working capital as of May 31, 2026 in comparison to May 31, 2025 was primarily due to favorable impacts from net income; proceeds from the issuance of senior notes, net of issuance costs, of $42.7 billion during fiscal 2026; $5.0 billion of cash proceeds from the issuance of Mandatory Convertible Preferred Stock, net of issuance costs; $4.9 billion of cash proceeds from the sale of our investments, primarily in Ampere; and $1.3 billion of net cash proceeds from our employee stock programs, partially offset by $55.7 billion of cash used for capital expenditures; $5.8 billion of cash used to pay dividends to our preferred and common stockholders; $5.7 billion of long-term borrowings that were reclassified to current li

Fiscal 2026 Oracle Restructuring Plan During fiscal 2026, our management approved, committed to, initiated and further supplemented plans to restructure to implement certain strategic measures and further improve operational efficiencies, including through the adoption and integration of AI technologies across certain functions and other operational activities (2026 Restructuring Plan). The total estimated restructuring costs associated with the 2026 Restructuring Plan are up to $2.1 billion and will be recorded to the restructuring and other expense line item within our consolidated statements of operations through the end of the plan. We recorded $1.8 billion of restructuring expenses in connection with the 2026 Restructuring Plan in fiscal 2026. Any changes to the estimates of executing the 2026 Restructuring Plan will be reflected in our future results of operations. Fiscal 2024 Oracle Restructuring Plan During fiscal 2024, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our acquisitions and certain other operational activities (2024 Restructuring Plan). In fiscal 2025, our management supplemente --- The valuation allowance was $2.5 billion and $2.0 billion as of May 31, 2026 and 2025, respectively, primarily related to U.S., state and foreign tax credits and net operating loss carryforwards. Any subsequent reduction of the valuation allowance will be recorded to our provision for income taxes unless the conclusion of an acquisition valuation allowance and the recognition of the associated tax benefits is within the measurement period (as defined above). At May 31, 2026, we had federal net operating loss carryforwards of approximately $374 million, which are subject to limitation on their utilization. Approximately $140 million of these federal net operating losses expire in various years between fiscal 2027 and fiscal 2038. Approximately $234 million of these federal net operating losses are not currently subject to expiration dates. We had state net operating loss carryforwards of approximately $2.7 billion at May 31, 2026, which are subject to limitations on their utilization. Approximately $2.4 billion of these state net operating losses expire in various years between fiscal 2027 and fiscal 2046. Approximately $275 million of these state net operating losses are not curren

customers’ data centers and third-party clouds with our OCI services for the creation of distributed and multicloud architectures. To complement the full suite of OCI offerings delivered by Oracle public cloud regions across the globe, we provide our customers with additional flexibility by offering certain OCI services in a number of deployment options, such as: •Oracle’s Multicloud Database offerings, which are designed to enable organizations to deploy and run Oracle AI Database services, Oracle Autonomous AI Database and Oracle Zero Data Loss Autonomous Recovery Service within other hyperscale cloud IT environments. This allows customers to leverage AI and analytics services from their cloud providers with their enterprise data; --- •Oracle Exadata Cloud@Customer, which is designed to enable customers to run Oracle Autonomous AI Database and Oracle Exadata Database Service securely in their own data centers behind their firewalls while having the services managed by Oracle; --- •OCI Dedicated Region, which is designed to enable customers to bring a self-contained OCI instance into their data centers while accessing the full portfolio of OCI and OCA offerings; --- •Oracle Compute Cloud@Customer and Oracle Roving Edge Infrastructure, which are designed to enable customers to access cloud computing and storage services at the edge of networks and in generally disconnected locations in order to accelerate deployment of cloud workloads outside of the data center. --- Oracle Autonomous AI Database Oracle Autonomous AI Database is designed to deliver performance and scale for enterprise AI, analytics, and transaction processing workloads with automated database operations and policy- and AI- and machine learning-driven optimization by combining certain Oracle infrastructure technologies, including the Oracle AI Database, OCI, Oracle Exadata and native AI and machine learning capabilities, among others. Oracle Autonomous AI Database is designed to be self-driving, automating routine database administration tasks, including maintenance, tuning, patching, scaling, security and backup. Oracle Autonomous AI Database is engineered to lower labor costs and reduce human error while using machine learning-driven diagnostics for fault prediction and error handling and is also engineered to provide automatic threat detection and remediation. Oracle Autonomous AI Database is designed to enable on-demand, automatic scaling of database resources combined with consumption-based pricing in order to help organizations lower costs by paying only for resources used. Oracle Autonomous AI Database includes Oracle APEX low-code application development service with AI --- cost by combining operating system and management software with Oracle server, storage and networking hardware. We offer our Oracle Engineered Systems through flexible deployment options, including on-premise, as a cloud offering in OCI, as a platform for Oracle AI Database services in Oracle multicloud partner data centers and as a hybrid cloud offering in customer data centers. Oracle Software and Hardware Support We provide customers the option to purchase software support contracts in connection with the purchase of Oracle applications and infrastructure software licenses. Substantially all of our customers opt to purchase software support contracts when they purchase these software licenses. We believe our software support offerings protect and enhance our customers’ investments in Oracle applications and infrastructure technologies because they provide proactive and personalized support services and unspecified license upgrades and enhancements during the term of the support period. Substantially all software support customers renew their support contracts with us upon expiration in order to continue to benefit from technical support services and the periodic issuance of uns --- Oracle Cloud Operations Oracle Cloud Operations deliver our Oracle Cloud offerings to c

Guidance for Full FY 2027 For fiscal year 2027, we confirm our prior revenue guidance of $90 billion total revenue and raise our non-GAAP EPS guidance to $8.05, which is growth of 18%1 after adjusting for the one-time events of selling our Ampere chip business and Bloom Energy warrants in fiscal year 2026. AI Market and Technology Evolution The large increases in Oracle’s RPO and revenue are driven by the growing demand for cloud infrastructure for AI training and inferencing. Oracle is building datacenters that are intended to use clean energy from natural gas fuel cells to generate electricity with minimal emissions. Other innovations in the areas of high-performance networking, advanced security and autonomous software have made Oracle the world’s fastest growing provider of cloud datacenters. Our database and applications businesses are both benefiting from Oracle’s early adoption of AI. The Oracle Multicloud AI Database grew 404% in Q4—making it our fastest growing business ever. The Oracle Health application suite will soon include a completely new AI version of the Cerner hospital and clinic patient care management system. We expect this new AI patient care management system

Alphabet Announces Proposed $80 Billion Equity Capital Raise to Expand AI Infrastructure and Compute --- Use of Proceeds Alphabet intends to use the net proceeds from the concurrent underwritten public offerings and the concurrent private placement for general corporate purposes, including capital expenditures to scale AI infrastructure and global compute. A portion of the net proceeds from the depositary share offerings, specifically, will be used to pay the cost of the related capped call transactions described below. Alphabet intends to use the net proceeds from the ATM program primarily to facilitate, for a period of time, an administrative change to how it meets tax obligations associated with vesting of employee equity awards. The company expects approximately $30 billion of ATM program proceeds will be used to meet these 2026 calendar year tax obligations. Any additional proceeds will be used for general corporate purposes. --- During its Q1 2026 earnings call, Alphabet announced that its 2026 capital expenditures are expected to be $180-$190 billion, and that it expects 2027 capital expenditures to significantly increase compared to 2026.

In April, 2026, we entered into additional agreements with certain third parties to backstop certain obligations relating to third-party data centers that we expect to be accounted for as credit derivatives with notional amounts totaling approximately $15.3 billion. See Note 5 for further details on variable interest entity considerations relating to our equity and credit derivatives. The fair values of outstanding derivative instruments were as follows (in millions): --- As of March 31, 2026, we have entered into leases primarily related to data centers that have not yet commenced with future lease payments of $75.6 billion that are not yet recorded. These leases will commence between 2026 and 2031 with non-cancelable lease terms primarily between one and 25 years. 20 --- Note 5. Variable Interest Entities Consolidated VIEs We consolidate VIEs in which we hold a variable interest and are the primary beneficiary. The results of operations and financial position of these VIEs are included in our consolidated financial statements. Unconsolidated VIEs We hold various forms of interests in VIEs, including certain of our investments in private companies and renewable energy entities, certain leases and credit backstops with data center entities, and certain backstops with energy infrastructure entities. Because we have determined that we do not direct the activities that most significantly impact the economic performance of these entities, we are not the primary beneficiary. Therefore, these VIEs are not consolidated within our financial statements. Our investments in private companies and renewable energy VIEs are primarily accounted for as non-marketable securities under the measurement alternative or the equity method. The carrying value of these investments are included within non-marketable securities on our Consolidated Balance Sheets. See Note 3 for further details on investments. The maximum exposure to these VIEs is generally limited to the c --- Intersect Acquisition On March 10, 2026, we completed our acquisition of Intersect, a developer of renewable energy, for $5.9 billion, after purchase price adjustments. This acquisition enables acceleration of data center capacity and energy development. Intersect is a VIE and we have determined we are the primary beneficiary. Following the close of the acquisition, the financial results are included in our consolidated financial statements and are allocated to our segments. The preliminary purchase price was allocated as follows (in millions): --- (1)Goodwill has been allocated to Google Services and Google Cloud segments and primarily attributable to synergies expected to arise after the acquisition. Goodwill is not deductible for tax purposes. `(2)    Includes $410 million of acquired cash. Pending Divestiture In March 2026, we entered into a definitive agreement to contribute our ownership interest in GFiber, a wholly owned subsidiary, into a newly formed entity. Upon closing, we expect to receive $1.5 billion in cash, a $2.0 billion note receivable, and a 49.99% equity interest. The remaining interest is expected to be accounted for as an unconsolidated VIE under the equity method of accounting, as we will no longer be the primary beneficiary. The transaction is expected to close in late 2026. As of March 31, 2026, GFiber met the criteria for held for sale classification. No impairment loss was recognized upon classification as held for sale and we ceased depreciation of the related long-lived assets. Held for sale assets primarily consist of property and equipment of $6.8 billion, which is included in other current assets in our Consolidated Balance Sheet as of March 31, 2026. The operating results of GFiber remain incl --- Note 10. Commitments and Contingencies Commitments We have contractual obligations from contracts with remaining terms greater than one year primarily consisting of certain long-term supply agreements to secure future production capacity

Revenue Backlog As of March 31, 2026, we had $467.6 billion of remaining performance obligations (“revenue backlog”), of which $462.3 billion related to Google Cloud. Revenue backlog represents commitments in customer contracts that have not yet been recognized as revenue. We expect to recognize just over 50% of the revenue backlog as revenues over the next 24 months with the remainder to be recognized thereafter. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by contract duration, our ability to deliver in accordance with relevant contract terms, and when our customers utilize services. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods and excludes cancellable contracts and payments we make to our customers not expected to be in exchange for distinct goods and services. In the first quarter of 2026, we elected to change our reporting of revenue backlog to now also include contracts with an original expected term of one year or less. As of March 31, 2026, the portion of our revenue backlog related to contracts with an original expected term of one y --- In April, 2026, we entered into additional agreements with certain third parties to backstop certain obligations relating to third-party data centers that we expect to be accounted for as credit derivatives with notional amounts totaling approximately $15.3 billion. See Note 5 for further details on variable interest entity considerations relating to our equity and credit derivatives. The fair values of outstanding derivative instruments were as follows (in millions): --- (1)Goodwill has been allocated to Google Services and Google Cloud segments and primarily attributable to synergies expected to arise after the acquisition. Goodwill is not deductible for tax purposes. `(2)    Includes $410 million of acquired cash. Pending Divestiture In March 2026, we entered into a definitive agreement to contribute our ownership interest in GFiber, a wholly owned subsidiary, into a newly formed entity. Upon closing, we expect to receive $1.5 billion in cash, a $2.0 billion note receivable, and a 49.99% equity interest. The remaining interest is expected to be accounted for as an unconsolidated VIE under the equity method of accounting, as we will no longer be the primary beneficiary. The transaction is expected to close in late 2026. As of March 31, 2026, GFiber met the criteria for held for sale classification. No impairment loss was recognized upon classification as held for sale and we ceased depreciation of the related long-lived assets. Held for sale assets primarily consist of property and equipment of $6.8 billion, which is included in other current assets in our Consolidated Balance Sheet as of March 31, 2026. The operating results of GFiber remain incl --- Note 10. Commitments and Contingencies Commitments We have contractual obligations from contracts with remaining terms greater than one year primarily consisting of certain long-term supply agreements to secure future production capacity for technical infrastructure and inventory components. In addition, we have commitments for certain energy service agreements to secure energy for data center usage, and certain content licensing agreements. As of March 31, 2026, expected future fixed or minimum guaranteed commitments under these agreements were $232.7 billion. We expect contractual commitments under the long-term supply agreements and content licenses to generally be paid through 2030. The energy service agreements include terms ranging from two to 20 years, with payments through 2047, and generally include take-or-pay provisions for minimum quantities of energy supply and substantive termination fees. Financial Guarantees 26 --- Note 13. Compensation Plans Stock-Based Compensation For the three months ended March 31, 2025 and 2026, total stock-based compensation (SBC) expense was

Derivative Financial Instruments We utilize derivative instruments to manage risks relating to our ongoing business operations, including foreign currencies, interest rates, commodity prices, credit risk, and market prices of certain marketable equity securities. These derivatives are primarily classified within Level 2 of the fair value hierarchy. We also enter into derivatives as a result of agreements with certain third parties to backstop certain payment obligations related to data centers, which we account for as credit derivatives. Additionally, a certain strategic investment includes forward funding commitments that are accounted for as equity derivatives, as they include rights to participate in future capital funding, the exercise of which is contingent upon the achievement of specified operational and financial milestones. These credit and equity derivatives are classified within Level 3 of the fair value hierarchy. Our valuation methods include probability-weighted expected return models, which may include a combination of observable and unobservable inputs, including counterparty risk, credit default rates, risk-free rate, and our contractual rights and obligations unde --- In April, 2026, we entered into additional agreements with certain third parties to backstop certain obligations relating to third-party data centers that we expect to be accounted for as credit derivatives with notional amounts totaling approximately $15.3 billion. See Note 5 for further details on variable interest entity considerations relating to our equity and credit derivatives. The fair values of outstanding derivative instruments were as follows (in millions): --- Note 4. Leases We have entered into operating and finance lease agreements primarily for data centers, land, and offices throughout the world with varying lease terms. Components of lease costs were as follows (in millions): --- As of March 31, 2026, we have entered into leases primarily related to data centers that have not yet commenced with future lease payments of $75.6 billion that are not yet recorded. These leases will commence between 2026 and 2031 with non-cancelable lease terms primarily between one and 25 years. 20 --- Note 5. Variable Interest Entities Consolidated VIEs We consolidate VIEs in which we hold a variable interest and are the primary beneficiary. The results of operations and financial position of these VIEs are included in our consolidated financial statements. Unconsolidated VIEs We hold various forms of interests in VIEs, including certain of our investments in private companies and renewable energy entities, certain leases and credit backstops with data center entities, and certain backstops with energy infrastructure entities. Because we have determined that we do not direct the activities that most significantly impact the economic performance of these entities, we are not the primary beneficiary. Therefore, these VIEs are not consolidated within our financial statements. Our investments in private companies and renewable energy VIEs are primarily accounted for as non-marketable securities under the measurement alternative or the equity method. The carrying value of these investments are included within non-marketable securities on our Consolidated Balance Sheets. See Note 3 for further details on investments. The maximum exposure to these VIEs is generally limited to the c --- (1)    As of December 31, 2025 and March 31, 2026, approximately 60% of technical infrastructure assets were comprised of servers and network equipment. The remaining balance was comprised of data center land and buildings and related assets. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in millions): As of December 31, 2025As of March 31, 2026 Accrued fines and settlements(1) $15,594 $15,551  Accrued purchases of property and equipment8,877 12,873  Accrued customer liabilities5,029

Non-Marketable Equity Investments Under Equity Method Our non-marketable equity method investments include an arrangement, entered into in October 2025, to co-develop a data center campus in Louisiana (the Venture), in which we hold a 20% membership interest. This Venture provides strategic optionality and flexibility, which we expect will enable us to effectively meet future infrastructure capacity needs as AI markets and technologies develop. The parties have committed to fund their respective pro rata share of approximately $27 billion in total estimated development costs. Our lease agreements with the Venture, which cover the right to use properties on the data center campus, will commence in 2029 and have an aggregate initial lease commitment of approximately $12.31 billion. Each leased property has an initial four-year lease term and options to renew for a total lease period of up to 20 years. In addition, we have provided residual value guarantees (RVG) with an aggregate threshold of approximately $28 billion that decreases over time. If we decide to terminate or not renew a lease, and if certain other conditions are met, our maximum RVG payment would equal any shortfall bet --- Depreciation expense on property and equipment was $5.68 billion and $3.84 billion for the three months ended March 31, 2026 and 2025, respectively. Within property and equipment, our servers and network assets depreciation expenses were $4.38 billion and $2.63 billion for the three months ended March 31, 2026 and 2025, respectively. --- In March 2026, we approved a plan to dispose of certain data center assets with a carrying value of $1.48 billion, consisting mostly of construction in progress and land. These assets were classified as held-for-sale within prepaid expenses and other current assets on our condensed consolidated balance sheet as of March 31, 2026. We expect to dispose of these assets within the next twelve months through a contribution to a third party for the purpose of co-developing data centers. --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of March 31, 2026. These lease obligations were approximately $182.88 billion, consisting of data centers, colocations, and certain network infrastructure, which will commence during the remainder of 2026 and 2036 with lease terms ranging from greater than one year to 30 years. --- As of March 31, 2026, we had $237.67 billion of non-cancelable contractual commitments, comprising both short-term and long-term arrangements. These commitments are mostly related to third-party cloud capacity arrangements and continued investments in servers and network infrastructure, data centers, and consumer hardware products in Reality Labs, with approximately $42.25 billion and $47.65 billion due in 2026 and 2027, respectively. In addition, as of March 31, 2026, we have contingent obligations to purchase up to $14.72 billion of cloud capacity over a five-year period, which may be reduced if the cloud service provider is able to sell such capacity to other customers. In April 2026, we entered into additional multi-year infrastructure contracts, related to which our non-cancelable contractual commitments increased by approximately $24 billion. --- •Net income was $26.77 billion, with diluted earnings per share (EPS) of $10.44 for the three months ended March 31, 2026. •Capital expenditures, including principal payments on finance leases, were $19.84 billion for the three months ended March 31, 2026. •Dividend and dividend equivalent payments were $1.35 billion for the three months ended March 31, 2026. •Cash, cash equivalents, and marketable securities were $81.18 billion as of March 31, 2026. •Effective tax rate was (23)% for the three months ended March 31, 2026. This rate reflects an income tax benefit of $8.03 billion related to the U.S. Corporate Alternative Minimum Tax transitional relief u

Non-Marketable Equity Investments Under Equity Method Our non-marketable equity method investments include an arrangement, entered into in October 2025, to co-develop a data center campus in Louisiana (the Venture), in which we hold a 20% membership interest. This Venture provides strategic optionality and flexibility, which we expect will enable us to effectively meet future infrastructure capacity needs as AI markets and technologies develop. The parties have committed to fund their respective pro rata share of approximately $27 billion in total estimated development costs. Our lease agreements with the Venture, which cover the right to use properties on the data center campus, will commence in 2029 and have an aggregate initial lease commitment of approximately $12.31 billion. Each leased property has an initial four-year lease term and options to renew for a total lease period of up to 20 years. In addition, we have provided residual value guarantees (RVG) with an aggregate threshold of approximately $28 billion that decreases over time. If we decide to terminate or not renew a lease, and if certain other conditions are met, our maximum RVG payment would equal any shortfall bet --- In March 2026, we approved a plan to dispose of certain data center assets with a carrying value of $1.48 billion, consisting mostly of construction in progress and land. These assets were classified as held-for-sale within prepaid expenses and other current assets on our condensed consolidated balance sheet as of March 31, 2026. We expect to dispose of these assets within the next twelve months through a contribution to a third party for the purpose of co-developing data centers. --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of March 31, 2026. These lease obligations were approximately $182.88 billion, consisting of data centers, colocations, and certain network infrastructure, which will commence during the remainder of 2026 and 2036 with lease terms ranging from greater than one year to 30 years. --- Our gross unrecognized tax benefits were $17.82 billion and $16.45 billion as of March 31, 2026 and December 31, 2025, respectively. These unrecognized tax benefits are primarily related to the uncertainties with our research tax credits and transfer pricing with our foreign subsidiaries, which include licensing of intellectual property, providing services and other transactions. If the gross unrecognized tax benefits as of March 31, 2026 were realized in a future period, this would result in a tax benefit of $11.98 billion within our provision for income taxes at such time. The amount of interest and penalties accrued was $2.83 billion and $2.60 billion as of March 31, 2026 and December 31, 2025, respectively. We expect to continue to accrue unrecognized tax benefits for certain recurring tax positions. --- On February 18, 2026, the U.S. Treasury issued Notice 2026-7, providing relief from the Corporate Alternative Minimum Tax (CAMT) related to the expensing of previously capitalized U.S. research and development costs. As a result, we recognized an $8.03 billion discrete income tax benefit during the first quarter of 2026, which partially offsets the $15.93 billion discrete charge recognized in the third quarter of 2025 upon enactment of the One Big Beautiful Bill Act. We expect to remain subject to CAMT for 2026 and subsequent years. --- We are also making significant investments in our RL efforts, including developing virtual and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our RL investments include expenses relating to technology development across these efforts. Many of our RL investments are directed toward long-term, cutting-edge research and development for products that may only be fully realized in the next decade. During the three months ended March 31, 2

Our estimates for revenue by user location, as well as year-over-year percentage changes in ad impressions delivered and the average price per ad by user location, are also affected by data limitations and other challenges in measuring user geography. Our data regarding the geographic location of our users is estimated based on a number of factors, such as the user's IP address and self-disclosed location. These factors may not always accurately reflect the user's actual location. For example, a user may appear to be accessing our products from the location of the proxy server that the user connects to rather than from the user's actual location. The methodologies used to measure our metrics are also susceptible to algorithm or other technical errors. 5 --- Non-Marketable Equity Investments Under Equity Method Our non-marketable equity method investments include an arrangement, entered into in October 2025, to co-develop a data center campus in Louisiana (the Venture), in which we hold a 20% membership interest. This Venture provides strategic optionality and flexibility, which we expect will enable us to effectively meet future infrastructure capacity needs as AI markets and technologies develop. The parties have committed to fund their respective pro rata share of approximately $27 billion in total estimated development costs. Our lease agreements with the Venture, which cover the right to use properties on the data center campus, will commence in 2029 and have an aggregate initial lease commitment of approximately $12.31 billion. Each leased property has an initial four-year lease term and options to renew for a total lease period of up to 20 years. In addition, we have provided residual value guarantees (RVG) with an aggregate threshold of approximately $28 billion that decreases over time. If we decide to terminate or not renew a lease, and if certain other conditions are met, our maximum RVG payment would equal any shortfall bet --- March 31, 2026December 31, 2025 Land$3,677 $3,687  Servers and network assets105,987 98,040  Buildings58,836 55,568  Leasehold improvements8,209 8,346  Equipment and other9,699 9,377  Finance lease right-of-use assets8,842 8,187  Construction in progress (1) 61,017 50,521  Property and equipment, gross256,267 233,726  Less: Accumulated depreciation(61,491)(57,326) Property and equipment, net$194,776 $176,400 --- ____________________________________ (1)Construction in progress includes costs mostly related to construction of data centers, network infrastructure and servers. --- Depreciation expense on property and equipment was $5.68 billion and $3.84 billion for the three months ended March 31, 2026 and 2025, respectively. Within property and equipment, our servers and network assets depreciation expenses were $4.38 billion and $2.63 billion for the three months ended March 31, 2026 and 2025, respectively. --- In March 2026, we approved a plan to dispose of certain data center assets with a carrying value of $1.48 billion, consisting mostly of construction in progress and land. These assets were classified as held-for-sale within prepaid expenses and other current assets on our condensed consolidated balance sheet as of March 31, 2026. We expect to dispose of these assets within the next twelve months through a contribution to a third party for the purpose of co-developing data centers. --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of March 31, 2026. These lease obligations were approximately $182.88 billion, consisting of data centers, colocations, and certain network infrastructure, which will commence during the remainder of 2026 and 2036 with lease terms ranging from greater than one year to 30 years. --- As of March 31, 2026, we had $237.67 billion of non-cancelable contractual commitments, comprising both short-term and long-term arrangements. These commitments are mostly

Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $55.6 billion and $56.4 billion as of December 31, 2025 and March 31, 2026. Accumulated amortization associated with finance leases was $40.4 billion as of December 31, 2025 and March 31, 2026. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): --- ___________________ (1)Includes property and equipment added under finance leases of $54 million and $237 million in Q1 2025 and Q1 2026. (2)Includes property and equipment added under finance leases of $0 million and $1.3 billion in Q1 2025 and Q1 2026. --- Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates and energy prices, changes in global economic conditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, the amount that Amazon.com invests in new business oppo --- Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $123.0 billion and $143.1 billion as of December 31, 2025 and March 31, 2026. Amounts held in foreign currencies were $29.7 billion and $22.1 billion as of December 31, 2025 and March 31, 2026. Our foreign currency balances include British Pounds, Canadian Dollars, Euros, Indian Rupees, and Japanese Yen. Cash provided by (used in) operating activities was $17.0 billion and $26.0 billion for Q1 2025 and Q1 2026. Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments. Cash received from our customers and other activities generally corresponds to our net sales. The increase in operating cash flow for the trailing twelve months ended March 31, 2026, compared to the comparable prior year period, was due to an increase in net income, excluding non-c --- While costs associated with Amazon Prime membership benefits and other shipping offers are not included in sales and marketing expense, we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely. General and Administrative General and administrative costs in Q1 2026 did not significantly change compared to the comparable prior year period. Other Operating Expense (Income), Net Other operating expense (income), net was $308 million and $447 million for Q1 2025 and Q1 2026, and was primarily related to charges associated with damaged data centers in the Middle East in Q1 20

Unearned Revenue Unearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the service period. Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships. Our total unearned revenue as of December 31, 2025 was $25.0 billion, of which $9.4 billion was recognized as revenue during the three months ended March 31, 2026. Included in “Other long-term liabilities” on our consolidated balance sheets was $4.4 billion of unearned revenue as of December 31, 2025 and March 31, 2026. Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future services that we expect to fulfill but have not yet been recognized in our financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were approximately $364 billion as of March 31, 2026. The weighted-average remaining life of our long-term contracts is 5.5 years. The amount and timing of revenue recognition will be driven by customer usage and our performance in accordance with contractual obligations, which can ext --- Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $123.0 billion and $143.1 billion as of December 31, 2025 and March 31, 2026. Amounts held in foreign currencies were $29.7 billion and $22.1 billion as of December 31, 2025 and March 31, 2026. Our foreign currency balances include British Pounds, Canadian Dollars, Euros, Indian Rupees, and Japanese Yen. Cash provided by (used in) operating activities was $17.0 billion and $26.0 billion for Q1 2025 and Q1 2026. Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments. Cash received from our customers and other activities generally corresponds to our net sales. The increase in operating cash flow for the trailing twelve months ended March 31, 2026, compared to the comparable prior year period, was due to an increase in net income, excluding non-c --- Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in Q1 2026, compared to the comparable prior year period, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by operational efficiencies. Changes in foreign exchange rates increased cost of sales by $1.8 billion for Q1 2026. Shipping costs were $22.5 billion and $25.7 billion in Q1 2025 and Q1 2026. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing our fu --- Guidance We provided guidance on April 29, 2026, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of April 29, 2026, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange r

Derivatives and Hedging Energy Contracts — We enter into energy contracts to secure electricity supply for our existing and future operations, some of which extend 20 years. We may make or receive net cash payments, rather than take delivery of electricity, when our consumption is less than committed quantities due to operational variability. Because we may make or receive net cash payments, these contracts are derivative instruments. These contracts are not traded on exchanges or transacted in secondary markets and are not used for trading or speculative purposes. Derivative instruments are measured at fair value each reporting period. Fair value measurements are based on valuation methods using both common factors like electricity futures prices where there are more liquid trading volumes generally for remaining contractual periods up to four to six years, forward capacity auctions, and risk-free interest rates, and a number of management assumptions for remaining contractual periods greater than four to six years where there is significantly less or no trading data such as long-dated forward commodity prices and implied volatility curves, and credit adjustments. The extent of ma --- Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $55.6 billion and $56.4 billion as of December 31, 2025 and March 31, 2026. Accumulated amortization associated with finance leases was $40.4 billion as of December 31, 2025 and March 31, 2026. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): --- Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates and energy prices, changes in global economic conditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, the amount that Amazon.com invests in new business oppo --- While costs associated with Amazon Prime membership benefits and other shipping offers are not included in sales and marketing expense, we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely. General and Administrative General and administrative costs in Q1 2026 did not significantly change compared to the comparable prior year period. Other Operating Expense (Income), Net Other operating expense (income), net was $308 million and $447 million for Q1 2025 and Q1 2026, and was primarily related to charges associated with damaged data centers in the Middle East in Q1 2026, asset impairments, and the amortization of intangible assets.

Contract Balances and Other Receivables As of March 31, 2026 and June 30, 2025, long-term accounts receivable, net of allowance for doubtful accounts, was $5.1 billion and $5.2 billion, respectively, and is included in other long-term assets in our consolidated balance sheets. As of March 31, 2026 and June 30, 2025, other receivables related to activities to facilitate the purchase of server components were $17.8 billion and $8.2 billion, respectively, and are included in other current assets in our consolidated balance sheets. Additionally, as of March 31, 2026, restricted investments pursuant to a supplier agreement were $11.5 billion, with $2.8 billion included in short-term investments and $8.7 billion included in equity and other investments in our consolidated balance sheet. We record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of March 31, 2026 and June 30, 2025, our financing receivables, net were $2.6 billion and $4.3 billion, respectively, for short-term and long-term financing receivables, which are included in other current asset --- As of March 31, 2026 and June 30, 2025, purchases of property and equipment remaining in accounts payable were $22.6 billion and $6.9 billion, respectively. --- Our Microsoft Cloud revenue, which includes Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365, was $54.5 billion and $155.1 billion for the three and nine months ended March 31, 2026, respectively, and $42.4 billion and $122.2 billion for the three and nine months ended March 31, 2025, respectively. These amounts are included in Server products and cloud services, Microsoft 365 Commercial products and cloud services, LinkedIn, and Dynamics products and cloud services in the table above. --- Reportable Segments We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting. Additional information on our reportable segments is contained in Note 16 – Segment Information and Geographic Data of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q). Metrics We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q). Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of Am --- Adjusted net income and adjusted diluted earnings per share (“EPS”) are non-GAAP financial measures. These non-GAAP financial measures exclude net gains and losses from investments in OpenAI. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results. Three Months Ended March 31, 2026 Compared with Three Months Ended March 31, 2025 Revenue increased $12.8 billion or 18% driven by growth in Microsoft Cloud. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue decreased with lower hardware sales across Devices and Gaming, offset in part by growth in Search advertising. Cost of revenue increased $4.9 billion or 22% drive

Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts expected to be invoiced and recognized as revenue in future periods, was $633 billion as of March 31, 2026. Estimating revenue that will be allocated to remaining performance obligations can involve significant judgments, including identifying and assessing variable consideration and potential renegotiation of commitments. We consider factors such as the nature of the terms and duration of the contract across our portfolio of contracts. Revenue allocated to remaining performance obligations related to the commercial portion of revenue was $627 billion as of March 31, 2026, with a weighted average duration of approximately 2.5 years. We expect to recognize approximately 30% of our total company remaining performance obligation revenue and 25% of our commercial remaining performance obligation revenue over the next 12 months and the remainder thereafter. --- As of March 31, 2026, we had additional leases, primarily for datacenters, that had not yet commenced of $196.6 billion. These leases will commence between fiscal year 2026 and fiscal year 2031 with lease terms of 1 year to 21 years. --- All repurchases were made using cash resources. Shares repurchased during fiscal year 2026 were under the share repurchase program approved on September 16, 2024. Shares repurchased during fiscal year 2025 were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $1.2 billion and $4.4 billion for the three and nine months ended March 31, 2026, respectively, and $1.3 billion and $4.1 billion for the three and nine months ended March 31, 2025, respectively. --- LIQUIDITY AND CAPITAL RESOURCES We expect existing cash, cash equivalents, short-term investments, cash flows from operations, and access to capital markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as dividends, share repurchases, debt maturities, and material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. Cash, Cash Equivalents, and Investments Cash, cash equivalents, and short-term investments totaled $78.3 billion and $94.6 billion as of March 31, 2026 and June 30, 2025, respectively. Equity and other investments were $33.7 billion and $15.4 billion as of March 31, 2026 and June 30, 2025, respectively. Our short-term investments are primarily intended to facilitate liquidity and capital preservation. They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated securities to diversify risk. Our fixed-income investments are exposed to interest rate risk a --- We returned $10.2 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2026. Refer to Note 14 – Stockholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion regarding share repurchases and dividends.

Operating expenses increased $3.1 billion or 7% driven by continued investments in research and development compute capacity, AI talent, and data to support product development across the portfolio, impairment and other related expenses in our Gaming business, and higher Copilot advertising expenses. Total company headcount declined year-over-year. Operating income increased $20.4 billion or 22% driven by growth in Productivity and Business Processes and Intelligent Cloud. --- •Operating expenses increased $795 million or 11% driven by continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio, as well as higher Copilot advertising expenses. --- •Operating expenses increased $459 million or 9% primarily driven by continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio. --- •Operating expenses increased $259 million or 7% driven by impairment and other related expenses in our Gaming business and continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio. --- •Operating expenses increased $1.6 billion or 8% driven by continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio, as well as higher Copilot advertising expenses. --- •Operating expenses increased $856 million or 5% driven by continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio. --- •Operating expenses increased $628 million or 6% driven by impairment and other related expenses in our Gaming business and continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio. --- Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include technology development costs, including AI training and other infrastructure costs, third-party development and programming costs, and the amortization of purchased software code and services content. Three Months Ended March 31, 2026 Compared with Three Months Ended March 31, 2025 Research and development expenses increased $717 million or 9% driven by continued investments in compute capacity, AI talent, and data to support product development across the portfolio, with headcount declining year-over-year. Nine Months Ended March 31, 2026 Compared with Nine Months Ended March 31, 2025 Research and development expenses increased $1.9 billion or 8% driven by continued investments in compute capacity, AI talent, and data to support product development across the portfolio, as well as impairment and other related expenses in our Gaming business, with headcount declining year-over-year. Sales and Marketing

•Family daily active people (DAP) – DAP was 3.56 billion on average for March 2026, an increase of 4% year-over-year. The slight decline in DAP on a quarter-over-quarter basis was driven by internet disruptions in Iran, as well as a restriction on access to WhatsApp in Russia. •Ad impressions – Ad impressions delivered across our Family of Apps increased by 19% year-over-year. •Average price per ad – Average price per ad increased by 12% year-over-year. •Revenue – Revenue was $56.31 billion, an increase of 33% year-over-year. Revenue on a constant currency basis would have increased by 29% year-over-year. •Costs and expenses – Total costs and expenses were $33.44 billion, an increase of 35% year-over-year. •Capital expenditures – Capital expenditures, including principal payments on finance leases, were $19.84 billion. •Capital return program – Dividend and dividend equivalent payments were $1.35 billion. •Cash, cash equivalents, and marketable securities – Cash, cash equivalents, and marketable securities were $81.18 billion as of March 31, 2026. •Cash flow – Cash flow from operating activities was $32.23 billion, and free cash flow was $12.39 billion.(1) •Headcount – Headcoun --- We anticipate 2026 capital expenditures, including principal payments on finance leases, to be in the range of $125-145 billion, increased from our prior range of $115-135 billion. This reflects our expectations for higher component pricing this year and, to a lesser extent, additional data center costs to support future year capacity.

"We had a milestone quarter with strong momentum across our apps and the release of our first model from Meta Superintelligence Labs," said Mark Zuckerberg, Meta founder and CEO. "We're on track to deliver personal superintelligence to billions of people." --- We anticipate 2026 capital expenditures, including principal payments on finance leases, to be in the range of $125-145 billion, increased from our prior range of $115-135 billion. This reflects our expectations for higher component pricing this year and, to a lesser extent, additional data center costs to support future year capacity.

“We are focused on delivering cloud and AI infrastructure and solutions that empower every business to eval-max their outcomes in the agentic computing era,” said Satya Nadella, chairman and chief executive officer of Microsoft. “Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year.” “We delivered results that exceeded expectations across revenue, operating income, and earnings per share, reflecting strong execution and growing demand for the Microsoft Cloud,” said Amy Hood, executive vice president and chief financial officer of Microsoft. The following table reconciles our financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.

Microsoft returned $10.2 billion to shareholders in the form of dividends and share repurchases in the third quarter of fiscal year 2026. Business Outlook Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast. Quarterly Highlights, Product Releases, and Customer Stories Every quarter Microsoft delivers hundreds of products, services, and enhancements. These releases are driven by years of significant research and development investments, to empower customers with greater productivity, security, and differentiated value. This momentum is reflected in stories that showcase how our technology is shaping industries and driving customer success. We share innovation updates on our product blogs across Azure, Microsoft 365, and more on our Official Microsoft blog. Webcast Details Satya Nadella, chairman and chief executive officer, Amy Hood, executive vice president and chief financial officer, Alice Jolla, chief accounting officer, Brian DeFoe, deputy general counsel and corporate secretary, and Jonathan Neilson, vice president of investor relations, will host a conference call and webcast at

As of February 28, 2026, we had $261 billion of additional lease commitments, substantially all related to data center arrangements, that are generally expected to commence between the fourth quarter of fiscal 2026 and fiscal 2028 and for terms of fifteen to nineteen years that were not reflected on our condensed consolidated balance sheets as --- of February 28, 2026. These additional lease commitments include a lease for which we have guaranteed up to $2.2 billion of the lessor’s borrowing, which matures in September 2026. Unconditional Obligations In the ordinary course of business, we enter into certain unconditional purchase obligations with our suppliers. These are agreements that are enforceable and legally binding and specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payment. As of February 28, 2026, our unconditional purchase and certain other obligations, which were primarily related to data center power arrangements, were $11 billion. --- Our cloud and software business’ total revenues increased by $2.9 billion and $6.3 billion in reported currency in the third quarter and the first nine months of fiscal 2026, respectively, relative to the corresponding prior year periods, primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts. Excluding the favorable impact of currency rate fluctuations of 4% in the third quarter of fiscal 2026 and 2% in the first nine months of fiscal 2026, cloud applications contributed 15% and 18% and cloud infrastructure contributed 85% and 82% to the constant currency growth in cloud revenues in the third quarter and the first nine months of fiscal 2026, respectively. The Americas region contributed 87% and 84%, the EMEA region contributed 8% and 10% and the Asia Pacific region contributed 5% and 6% to the constant currency revenue growth for this business during the third quarter and the first nine months of fiscal 2026, respectively. Our cloud and software business’ total expenses increased by $1.8 billion and $4.1 billion in reported currency in the third quarter and the first nine mont --- Working capital: The increase in working capital as of February 28, 2026 in comparison to May 31, 2025 was primarily due to favorable impacts from net income; proceeds from the issuance of senior notes in September 2025 and February 2026, net of issuance costs, of $42.7 billion (refer to Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information); $5.0 billion of cash proceeds from the issuance of Mandatory Convertible Preferred Stock, net of issuance costs (refer to Note 7 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information); $4.3 billion of cash proceeds from the sale of our investments in Ampere; and $1.2 billion of net cash proceeds from our employee stock programs, partially offset by $39.2 billion of cash used for capital expenditures; $4.3 billion of cash used to pay dividends to our common stockholders; $3.3 billion of long-term borrowings that --- were reclassified to current liabilities; $851 million of cash used for purchases, net of sales and maturities, of non-current investments; and $95 million of cash used for repurchases of our common stock, in each case during the first nine months of fiscal 2026. Our working capital may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable. Cash, cash equivalents and marketable securities: Cash and cash equivalents primarily consist of deposits held at major banks, money market funds and other securities with original maturities of 90 days or less. Marketable securities consist primarily of time deposits with original maturit

Remaining Performance Obligations from Contracts with Customers Trade receivables, net of allowance for credit losses, and deferred revenues are reported net of related uncollected deferred revenues in our condensed consolidated balance sheets as of February 28, 2026 and May 31, 2025. The revenues recognized during the nine months ended February 28, 2026 and 2025 that were included in the opening deferred revenues balances as of May 31, 2025 and 2024 were approximately $8.7 billion and $8.6 billion, respectively. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial in each of the three and nine months ended February 28, 2026 and 2025, respectively. Remaining performance obligations were $552.6 billion as of February 28, 2026, of which we expect to recognize approximately 12% as revenues over the next twelve months, 31% over the subsequent month 13 to month 36, 35% over the subsequent month 37 to month 60 and the remainder thereafter. We have elected the optional exemption to not disclose the variable consideration for contracts in which the variable consideration expected to be received over --- Our cash equivalents and marketable securities investments consist of money market funds, time deposits and marketable equity securities. Marketable securities as presented per our condensed consolidated balance sheets included debt securities with original maturities at the time of purchase greater than three months and the remainder of the debt securities were included in cash and cash equivalents. We classify our marketable debt securities as available-for-sale debt securities at the time of purchase and reevaluate such classification as of each balance sheet date. As of February 28, 2026 and May 31, 2025, all of our marketable debt securities investments mature within one year. Our valuation techniques used to measure the fair values of our instruments that were classified as Level 1 in the table above were derived from quoted market prices and active markets for these instruments that exist. Our valuation techniques used to measure the fair values of Level 2 instruments listed in the table above were derived from the following: non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, --- Our cloud and software business’ total revenues increased by $2.9 billion and $6.3 billion in reported currency in the third quarter and the first nine months of fiscal 2026, respectively, relative to the corresponding prior year periods, primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts. Excluding the favorable impact of currency rate fluctuations of 4% in the third quarter of fiscal 2026 and 2% in the first nine months of fiscal 2026, cloud applications contributed 15% and 18% and cloud infrastructure contributed 85% and 82% to the constant currency growth in cloud revenues in the third quarter and the first nine months of fiscal 2026, respectively. The Americas region contributed 87% and 84%, the EMEA region contributed 8% and 10% and the Asia Pacific region contributed 5% and 6% to the constant currency revenue growth for this business during the third quarter and the first nine months of fiscal 2026, respectively. Our cloud and software business’ total expenses increased by $1.8 billion and $4.1 billion in reported currency in the third quarter and the first nine mont --- Interest expense increased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, primarily due to higher average borrowings from the issuances of $43.0 billion of senior notes in the second and third quarters of fiscal 2026 and an aggregate of $14.0 billion of senior notes in fiscal 2025, partially offset by lower interest expense due to sched

Leases We have operating and finance leases that primarily relate to our data centers and real estate facilities. The components of lease expense were as follows: --- As of February 28, 2026, we had $261 billion of additional lease commitments, substantially all related to data center arrangements, that are generally expected to commence between the fourth quarter of fiscal 2026 and fiscal 2028 and for terms of fifteen to nineteen years that were not reflected on our condensed consolidated balance sheets as --- of February 28, 2026. These additional lease commitments include a lease for which we have guaranteed up to $2.2 billion of the lessor’s borrowing, which matures in September 2026. Unconditional Obligations In the ordinary course of business, we enter into certain unconditional purchase obligations with our suppliers. These are agreements that are enforceable and legally binding and specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payment. As of February 28, 2026, our unconditional purchase and certain other obligations, which were primarily related to data center power arrangements, were $11 billion. --- software support revenues, which are typically contracted with customers directly, billed to customers in advance, delivered to customers over time with our revenue recognition occurring over the contractual terms and renewed by customers upon completion of the contractual terms. Software support contracts provide customers with technical support services and unspecified license upgrades and enhancements during the term of the support period. In each fiscal year, our cloud and software business’ contractual activities, excluding the impact of timing of booking of large contracts, are typically highest in our fourth fiscal quarter, and the related cash flows are typically highest in the following quarter (i.e., in the first fiscal quarter of the next fiscal year) as we receive payments from these contracts. Costs associated with our cloud and software business are largely infrastructure- and personnel-related, including the cost of providing our cloud and software offerings, salaries and commissions earned by our sales force for the sale of our cloud and software offerings and marketing program costs. Our hardware business provides infrastructure technologies including Oracle Engine --- Our cloud and software business’ total revenues increased by $2.9 billion and $6.3 billion in reported currency in the third quarter and the first nine months of fiscal 2026, respectively, relative to the corresponding prior year periods, primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts. Excluding the favorable impact of currency rate fluctuations of 4% in the third quarter of fiscal 2026 and 2% in the first nine months of fiscal 2026, cloud applications contributed 15% and 18% and cloud infrastructure contributed 85% and 82% to the constant currency growth in cloud revenues in the third quarter and the first nine months of fiscal 2026, respectively. The Americas region contributed 87% and 84%, the EMEA region contributed 8% and 10% and the Asia Pacific region contributed 5% and 6% to the constant currency revenue growth for this business during the third quarter and the first nine months of fiscal 2026, respectively. Our cloud and software business’ total expenses increased by $1.8 billion and $4.1 billion in reported currency in the third quarter and the first nine mont --- Hardware Business Our hardware business’ revenues are generated from the sales of our Oracle Engineered Systems, server, storage and industry-specific hardware offerings. The hardware product and related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obl

Guidance for Fiscal Years 2026 and 2027 For fiscal year 2026, we expect revenue of $67 billion and capital expenditures of $50 billion. This is unchanged from our most recent previous guidance. For fiscal year 2027, we are raising total revenue guidance to $90 billion. Common Stock Quarterly Dividend The board of directors declared a quarterly cash dividend of $0.50 per share of outstanding common stock. This dividend will be paid to stockholders of record as of the close of business on April 9, 2026, with a payment date of April 24, 2026. •A sample list of customers which purchased Oracle Cloud services during the quarter will be available at www.oracle.com/customers/earnings/.

Oracle Announces Fiscal Year 2026 Third Quarter Financial Results   •Q3 Remaining Performance Obligations $553 billion, up 325% year-over-year in USD --- Guidance for Fiscal Years 2026 and 2027 For fiscal year 2026, we expect revenue of $67 billion and capital expenditures of $50 billion. This is unchanged from our most recent previous guidance. For fiscal year 2027, we are raising total revenue guidance to $90 billion. Common Stock Quarterly Dividend The board of directors declared a quarterly cash dividend of $0.50 per share of outstanding common stock. This dividend will be paid to stockholders of record as of the close of business on April 9, 2026, with a payment date of April 24, 2026. •A sample list of customers which purchased Oracle Cloud services during the quarter will be available at www.oracle.com/customers/earnings/.

__________________ (1)Includes the original cost and accumulated depreciation of fully-depreciated assets. Property and equipment acquired but not yet paid are included within “Accounts payable” and were $16.8 billion and $27.0 billion as of December 31, 2024 and 2025. Depreciation and amortization expense on property and equipment was $30.2 billion, $32.1 billion, and $41.9 billion which includes amortization of property and equipment acquired under finance leases of $5.9 billion, $3.9 billion, and $3.3 billion for 2023, 2024, and 2025. 54 --- Note 4 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $56.5 billion and $55.6 billion as of December 31, 2024 and 2025. Accumulated amortization associated with finance leases was $41.8 billion and $40.4 billion as of December 31, 2024 and 2025. --- ___________________ (1)Includes non-cancellable financing obligations for fulfillment network and data center facilities. Excluding interest, current financing obligations of $312 million and $358 million are recorded within “Accrued expenses and other” and $7.1 billion and $7.8 billion are recorded within “Other long-term liabilities” as of December 31, 2024 and 2025. The weighted-average remaining term of the financing obligations was 16.1 years and 15.0 years and the weighted-average imputed interest rate was 3.1% and 2.9% as of December 31, 2024 and 2025. (2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content, procure energy, acquire property and equipment, and license software that are not reflected on the consolidated balance sheets. For those agreements with variable terms or subject to certain regulatory approvals, we do not estimate the total obligation beyond any minimum quantities and/or pricing, or termination penalties, as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or --- ___________________ (1)Includes property and equipment added under finance leases of $525 million, $616 million, and $1.0 billion in 2023, 2024, and 2025, and under build-to-suit lease arrangements of $356 million, $89 million, and $20 million in 2023, 2024, and 2025. (2)Includes property and equipment added under finance leases of $117 million, $238 million, and $1.9 billion in 2023, 2024, and 2025, and under build-to-suit lease arrangements of $1 million, $8 million, and $421 million in 2023, 2024, and 2025. --- U.S. property and equipment, net and operating leases were $196.0 billion, $241.6 billion, and $321.9 billion, as of December 31, 2023, 2024, and 2025, and non-U.S. property and equipment, net and operating leases were $80.7 billion, $87.2 billion, and $121.2 billion as of December 31, 2023, 2024, and 2025. Except for the U.S., property and equipment, net and operating leases in any single country were less than 10% of consolidated property and equipment, net and operating leases. 70

Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in 2025, compared to the prior year, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by operational efficiencies. Changes in foreign exchange rates increased cost of sales by $2.8 billion in 2025. Shipping costs were $95.8 billion and $102.7 billion in 2024 and 2025. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing our fulfillment network, negotiating --- Guidance We provided guidance on February 5, 2026, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of February 5, 2026, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates and energy prices, changes in global economic and geopolitical conditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part I, “Risk Factors.” First Quarter 2026 Guidance •Net sales are expected to be between $173.5 billion and $178.5 billion, or to grow between 11% and 15% compared with first quarter 2025. This guidance anticipates a favorable impact of approximately 180 basis points from foreign exchange rates. •Operating income is expected to be between $16.5 --- Unearned Revenue Unearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the service period. Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships. Our total unearned revenue as of December 31, 2024 was $24.6 billion, of which $17.4 billion was recognized as revenue during the year ended December 31, 2025 and our total unearned revenue as of December 31, 2025 was $25.0 billion. Included in “Other long-term liabilities” on our consolidated balance sheets was $6.5 billion and $4.4 billion of unearned revenue as of December 31, 2024 and 2025. Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future services that we expect to fulfill but have not yet been recognized in our financial statements. For contracts with original terms that exceed one year, those commitments not yet recognized were approximately $244 billion as of December 31, 2025. The weighted average remaining life of our long-term contracts is 4.1 years. The amount and timing of revenue recognition will be driven by customer usa --- ___________________ (1)As of December 31, 2025, we had approximately $6.6 billion of income tax contingencies of which $5.0 billion, if fully recognized, would decrease our effective tax rate. As of December 31, 2024 and 2025, we had accrued interest and penalties, net of federal income tax benefit, related to tax contingencies of $316 million and $400 million. Interest and p

Description of UseLeased Square Footage (1)Owned Square FootageLocation Office space31,0289,160North America Office space26,4951,802International Physical stores (2)23,932706North America Physical stores (2)148—International Fulfillment, data centers, and other474,12845,803North America Fulfillment, data centers, and other185,81420,660International Total741,54578,131 --- Technology and Infrastructure Technology and infrastructure costs include payroll and related expenses for employees involved in the research and development of new and existing products and services, development, design, and maintenance of our stores, curation and display of products and services made available in our online stores, and infrastructure costs. Infrastructure costs include servers, networking equipment, and data center related depreciation and amortization, rent, utilities, and other expenses necessary to support AWS and other Amazon businesses. Collectively, these costs reflect the investments we make in order to offer a wide variety of products and services to our customers, including expenditures related to initiatives to build and deploy innovative and efficient software and electronic devices and the development of a satellite network for global broadband service and autonomous vehicles for ride-hailing services. Technology and infrastructure costs are generally expensed as incurred. --- Derivative Instruments We enter into energy contracts to secure electricity supply for our existing and future operations, some of which extend 20 years. We may make or receive net cash payments, rather than take delivery of electricity, when our consumption is less than committed quantities due to operational variability. Because we may make or receive net cash payments, these contracts are derivative instruments. These contracts are not traded on exchanges or transacted in secondary markets and are not used for trading or speculative purposes. Derivative instruments are measured at fair value each reporting period. Fair value measurements are based on valuation methods using both common factors like electricity futures prices where there are more liquid trading volumes generally for remaining contractual periods up to four to five years, forward capacity auctions and risk-free interest rates, and a number of management assumptions for remaining contractual periods greater than four to five years where there is significantly less or no trading data such as long-dated forward commodity prices and implied volatility curves, and credit adjustments. The extent of management judgment i --- Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation and amortization. Incentives that we receive from property and equipment vendors are recorded as a reduction to our costs. Property includes buildings and land that we own, along with property we have acquired under build-to-suit lease arrangements when we have control over the building during the construction period and finance lease arrangements. Heavy equipment consists primarily of assets that support the infrastructure of our fulfillment network and data centers. Other equipment consists primarily of fulfillment equipment. Depreciation and amortization is recorded on a straight-line basis over the estimated useful lives of the assets and classified within the corresponding operating expense categories on our consolidated statements of operations. The estimated useful lives as of December 31, 2025, are as follows: Property and equipmentEstimated useful life BuildingsLesser of forty years or the remaining life of the underlying building --- Servers and networking equipmentFive to six years (1) --- ___________________ (1)Effective January 1, 2024, we changed our estimate of the useful lives for our servers from five to six years, and effective January 1, 2025, we changed our estimate of the useful lives of a subset of our servers and networking equipment from six to

shift from Google Network properties to Google Search & other properties. Our TAC rate will continue to be affected by changes in device mix; geographic mix; partner agreement terms; partner mix; the percentage of queries channeled through paid access points; product mix; the relative revenue growth rates of advertising revenues from different channels; and revenue share terms. •We have raised capital through external financing in the form of debt and we may continue to seek debt or other forms of financing in the future to support our capital and operating needs. In 2025, we raised capital through the issuance of debt and we expect to continue to assess the use of debt and other forms of financing in the future. We expect to continue to enter into finance leases, primarily for data centers. Additionally, in 2025, we provided credit support, such as through backstops and guarantees, to certain infrastructure related counterparties and may continue to provide additional credit support in the future. •We face an evolving regulatory environment, and we are subject to claims, lawsuits, investigations, and other forms of potential legal liability, which could affect our business pract --- •In 2025, we entered into definitive agreements to acquire Wiz, a leading cloud security platform, for $32.0 billion, and Intersect, a provider of data center and energy infrastructure solutions, for $4.8 billion in cash plus the assumption of debt. Both acquisitions are expected to close in 2026, subject to customary closing conditions, including the receipt of regulatory approvals. •In 2025, we issued senior unsecured notes for net proceeds of $37.3 billion, to be used for general corporate purposes. •OI&E of $29.8 billion for the year ended December 31, 2025 included net gains on equity securities of $24.1 billion, primarily related to unrealized gains on our non-marketable equity securities. •Other Bets operating loss of $7.5 billion for the year ended December 31, 2025 included a $2.1 billion employee compensation charge recognized in the fourth quarter for Waymo, primarily reflected in research and development expenses, based on estimated stock valuation. In February 2026, Waymo announced an investment round of $16.0 billion, the significant majority of which was funded by Alphabet. •Changes to U.S. tax law enacted on July 4, 2025, allow, among other things, for immediate ex --- Cost of revenues increased $16.2 billion from 2024 to 2025 due to an increase in other cost of revenues and TAC of $11.2 billion and $5.0 billion, respectively. The increase in TAC from 2024 to 2025 was largely due to an increase in TAC paid to distribution partners, primarily driven by growth in revenues subject to TAC. The TAC rate decreased from 20.7% to 20.3% from 2024 to 2025, primarily due to a revenue mix shift from Google Network properties to Google Search & other properties. The TAC rates on Google Search & other and Google Network revenues were substantially consistent from 2024 to 2025. The increase in other cost of revenues from 2024 to 2025 was primarily due to increases in content acquisition costs, largely for YouTube, depreciation expense, and other technical infrastructure operations costs. --- (1)Alphabet-level activities primarily reflect expenses related to our shared AI research and development. Google Services Google Services operating income increased $18.1 billion from 2024 to 2025. The increase in operating income was primarily driven by an increase in revenues, partially offset by an increase in expenses related to legal and other matters, TAC, and content acquisition costs. Google Cloud Google Cloud operating income increased $7.8 billion from 2024 to 2025. The increase in operating income was primarily driven by an increase in revenues, partially offset by increases in usage costs for technical infrastructure and employee compensation expenses. Other Bets Other Bets operating loss increased $3.1 billion from 2024 to 2025. The in

Capital Expenditures Our capital investments in property and equipment consist primarily of the following major categories: •technical infrastructure, which consists of our investments in servers and network equipment, data center land, and building construction and improvements; and •office facilities, ground-up development projects, and building improvements. Assets not yet in service are those that are not ready for their intended use, including assets in the process of construction or assembly, and consist primarily of technical infrastructure. The time frame from date of purchase to placement in service of these assets may extend from months to years. For example, our data center construction projects are generally multi-year projects with multiple phases, where we acquire land and buildings, construct buildings, and secure and install servers and network equipment. During the years ended December 31, 2024 and 2025, we spent $52.5 billion and $91.4 billion on capital expenditures, respectively. In 2026, we expect to significantly increase, relative to 2025, our investment in our technical infrastructure, including servers and network equipment, and data centers. Depreciation o --- Leases As of December 31, 2025, the amount of total undiscounted future lease payments under operating leases was $18.3 billion, of which $3.3 billion is short-term, and total undiscounted future lease payments under finance leases was $2.9 billion, of which $491 million is short-term. As of December 31, 2025, we have entered into leases primarily related to data centers that have not yet commenced with short-term and long-term future lease payments of $5.8 billion and $52.7 billion, respectively. These leases will commence between 2026 and 2031 with non-cancelable lease terms primarily between one and 25 years. In January 2026, we executed a power purchase agreement which we expect to be accounted for as a lease resulting in future payments depending on certain agreement terms of $9.9 billion between 2027 and 2047. If certain contractual conditions for the project are not met, we would instead make a one-time payment of approximately $3.5 billion and assume ownership of the power generating assets. 38. --- (1)    Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas"). Revenue Backlog As of December 31, 2025, we had $242.8 billion of remaining performance obligations (“revenue backlog"), primarily related to Google Cloud. Revenue backlog represents commitments in customer contracts that have not yet been recognized as revenue. We expect to recognize just over 50% of the revenue backlog as revenues over the next 24 months with the remainder to be recognized thereafter. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by contract duration, our ability to deliver in accordance with relevant contract terms, and when our customers utilize services. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods, and excludes contracts with an original expected term of one year or less and cancellable contracts. Deferred Revenues We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Deferred revenues primarily relate --- As of December 31, 2025, we have entered into leases primarily related to data centers that have not yet commenced with short-term and long-term future lease payments of $5.8 billion and $52.7 billion, respectively, that are not yet recorded. These leases will commence between 2026 and 2031 with non-cancelable lease terms primarily between one and 25 years. In January 2026, we executed a power purchase agreement which we expect to be accounted for as a lease resulting in future payments depending on certain agreement terms of $9.9 billion between 2027 an

•AI-optimized Infrastructure: runs on our Cloud, at the edge, or in customers' data centers. It can be used to migrate and modernize information technology (IT) systems and to train and serve various types of AI models. Our AI infrastructure delivers cost-performance for AI workloads. We offer a range of AI accelerators, including our custom TPUs and specialized GPUs, as well as AI-optimized storage offerings, and efficient AI software. •Developer Platform: delivers a fully managed AI development platform, through Vertex AI, for accessing, tuning, augmenting, and deploying custom models and agents, helping customers build applications with more than 200 foundation models, including our Gemini family, third-party, and open models. •Cybersecurity: provides AI-powered threat intelligence and cybersecurity solutions to help customers detect, analyze, protect against, and respond to a broad range of cybersecurity threats. •Data and Analytics: enables customers to migrate, clean, prepare, and feed data into their models. Our data platform also unifies data lakes, data warehouses, data governance, and advanced machine learning into a single platform that helps users analyze data using AI --- ITEM 2.PROPERTIES Our headquarters are located in Mountain View, California. We own and lease office facilities and data centers around the world, primarily in Asia, Europe, and North America. We believe our existing facilities are in good condition and suitable for the conduct of our business. --- Stock Performance Graphs The graph below matches Alphabet Inc. Class A's cumulative five-year total stockholder return on common stock with the cumulative total returns of the S&P 500 index, the NASDAQ Composite index, and the RDG Internet Composite index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2020, to December 31, 2025. The returns shown are based on historical results and are not intended to suggest future performance. COMPARISON OF CUMULATIVE 5-YEAR TOTAL RETURN* ALPHABET INC. CLASS A COMMON STOCK Among Alphabet Inc., the S&P 500 Index, the NASDAQ Composite Index, and the RDG Internet Composite Index --- The graph below matches Alphabet Inc. Class C's cumulative five-year total stockholder return on capital stock with the cumulative total returns of the S&P 500 index, the NASDAQ Composite index, and the RDG Internet Composite index. The graph tracks the performance of a $100 investment in our Class C capital stock and in each index (with the reinvestment of all dividends) from December 31, 2020, to December 31, 2025. The returns shown are based on historical results and are not intended to suggest future performance. COMPARISON OF CUMULATIVE 5-YEAR TOTAL RETURN* ALPHABET INC. CLASS C CAPITAL STOCK Among Alphabet Inc., the S&P 500 Index, the NASDAQ Composite Index, and the RDG Internet Composite Index --- shift from Google Network properties to Google Search & other properties. Our TAC rate will continue to be affected by changes in device mix; geographic mix; partner agreement terms; partner mix; the percentage of queries channeled through paid access points; product mix; the relative revenue growth rates of advertising revenues from different channels; and revenue share terms. •We have raised capital through external financing in the form of debt and we may continue to seek debt or other forms of financing in the future to support our capital and operating needs. In 2025, we raised capital through the issuance of debt and we expect to continue to assess the use of debt and other forms of financing in the future. We expect to continue to enter into finance leases, primarily for data centers. Additionally, in 2025, we provided credit support, such as through backstops and guarantees, to certain infrastructure related counterparties and may continue to provide additional credit support in the future. •We face an evolving regulato

The majority of our investments are directed toward developing our family of apps. In 2025, 82% of our total costs and expenses were recognized in FoA and 18% were recognized in RL. Our FoA investments were $96.29 billion in 2025 and include expenses relating to headcount, data centers and technical infrastructure as part of our efforts to develop our apps and our advertising services. We are also making significant investments in our RL efforts, including developing virtual and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our total RL investments were $21.40 billion in 2025 and include expenses relating to headcount and technology development across these efforts. These are fundamentally new technologies that we expect will evolve as the next computing platform develops, and many products may only be fully realized in the next decade. Although it is inherently difficult to predict when and how the next computing platform will develop, we expect our RL segment to continue to operate at a loss for the foreseeable future, 7 --- Our product development philosophy centers on continuous innovation in creating and improving products that are social by design, which means that our products are designed to place people and their social interactions at the core of the product experience. Historically, the increases in our computing needs have been driven by growth in our user base as well as engagement with products like video and VR. Our increased efforts toward building frontier AI models have driven a significant further expansion in our computing needs and we expect our computing needs to continue to expand as a result. We have designed and built our own data centers and key portions of our technical infrastructure, and a substantial portion of our technical infrastructure is also provided by third parties. Our ability to provide and continue to innovate our products and services depends on the continued availability of components, power, and network capacity. --- We incur significant expenses in operating our business, and we expect our expenses to continue to increase in the future as we continue to invest in new and unproven technologies, including AI and machine learning, as we broaden our user base, as users increase the amount and types of content they consume and the data they share with us, for example with respect to video, as we develop and implement new products, as we market new and existing products and promote our brands, as we continue to expand our technical infrastructure, and as we continue our efforts to focus on privacy, safety, security, and content and advertising review and enforcement. We have previously undertaken cost reduction measures in light of a more challenging operating environment, which may adversely affect these or other business initiatives, and some of these measures have involved, and may in the future involve, up-front charges and outlays of cash to reduce certain longer-term expenses. In addition, from time to time we are subject to settlements, judgments, fines, or other monetary penalties in connection with legal and regulatory developments that may be material to our business. --- We have designed and built our own data centers and key portions of our technical infrastructure through which we serve our products, and we plan to continue to significantly expand the size of our infrastructure primarily through data centers, subsea and terrestrial fiber optic cable systems, and other projects. The infrastructure expansion we are undertaking is complex and involves projects in multiple locations around the world, including in developing regions that expose us to increased risks relating to anti-corruption compliance, trade compliance, environmental, health, and safety compliance, and political challenges, among others. We have changed, suspended, and terminated certain of these projects as a result of various factors,

The majority of our investments are directed toward developing our family of apps. In 2025, 82% of our total costs and expenses were recognized in FoA and 18% were recognized in RL. Our FoA investments were $96.29 billion in 2025 and include expenses relating to headcount, data centers and technical infrastructure as part of our efforts to develop our apps and our advertising services. We are also making significant investments in our RL efforts, including developing virtual and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our total RL investments were $21.40 billion in 2025 and include expenses relating to headcount and technology development across these efforts. These are fundamentally new technologies that we expect will evolve as the next computing platform develops, and many products may only be fully realized in the next decade. Although it is inherently difficult to predict when and how the next computing platform will develop, we expect our RL segment to continue to operate at a loss for the foreseeable future, 7 --- We have made significant investments in AI initiatives, including investments in infrastructure and headcount, including specialized technical personnel, to support our efforts to enhance our products, features, and advertising tools, as well as to develop and train our AI models, and expect to continue to increase these investments. We are also continuing to increase our investments in new platforms and technologies, including as part of our VR, Horizon, and wearables efforts. Some of these investments, particularly our significant investments in Reality Labs, have generated only limited revenue and reduced our operating margin and profitability, and we expect the adverse financial impact of such investments to continue for the foreseeable future. For example, our investments in Reality Labs reduced our 2025 overall operating profit by approximately $19.19 billion, and we expect our 2026 Reality Labs operating losses to remain similar to 2025. If our investments are not successful longer-term, our business and financial performance will be harmed. --- We are also making significant investments in our RL efforts, including developing virtual and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our RL investments include expenses relating to technology development across these efforts. Many of our RL investments are directed toward long-term, cutting-edge research and development for products that may only be fully realized in the next decade. In 2025, our RL segment reduced our overall operating profit by approximately $19.19 billion, and we expect our 2026 RL operating losses to remain similar to 2025. We expect this will be a complex, evolving, and long-term initiative, and our ability to support our RL efforts is dependent on generating sufficient profits from other areas of our business. We are investing now because we believe this will become the next computing platform and will unlock monetization opportunities for businesses, developers, and creators, including around advertising, hardware, and digital goods. 63 --- Advertising revenue in 2025 increased $35.54 billion, or 22%, compared to 2024 due to increases in ad impressions delivered and average price per ad. In 2025, ad impressions delivered increased by 12%, as compared with an increase of 11% in 2024, year-over-year. Ad impressions delivered during 2025 grew in all regions, especially in Asia-Pacific, which was driven by increases in users and their engagement on our products. In 2025, the average price per ad increased by 9%, as compared with an increase of 10% in 2024, year-over-year. The increase in average price per ad in 2025 was driven by an increase in advertising demand, which we believe is mostly due to ongoing improvements to our ad performance from our ad targeting and measurement tools. This

Our estimates for revenue by user location, as well as year-over-year percentage changes in ad impressions delivered and the average price per ad by user location, are also affected by data limitations and other challenges in measuring user geography. Our data regarding the geographic location of our users is estimated based on a number of factors, such as the user's IP address and self-disclosed location. These factors may not always accurately reflect the user's actual location. For example, a user may appear to be accessing our products from the location of the proxy server that the user connects to rather than from the user's actual location. The methodologies used to measure our metrics are also susceptible to algorithm or other technical errors. 5 --- The majority of our investments are directed toward developing our family of apps. In 2025, 82% of our total costs and expenses were recognized in FoA and 18% were recognized in RL. Our FoA investments were $96.29 billion in 2025 and include expenses relating to headcount, data centers and technical infrastructure as part of our efforts to develop our apps and our advertising services. We are also making significant investments in our RL efforts, including developing virtual and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our total RL investments were $21.40 billion in 2025 and include expenses relating to headcount and technology development across these efforts. These are fundamentally new technologies that we expect will evolve as the next computing platform develops, and many products may only be fully realized in the next decade. Although it is inherently difficult to predict when and how the next computing platform will develop, we expect our RL segment to continue to operate at a loss for the foreseeable future, 7 --- Our product development philosophy centers on continuous innovation in creating and improving products that are social by design, which means that our products are designed to place people and their social interactions at the core of the product experience. Historically, the increases in our computing needs have been driven by growth in our user base as well as engagement with products like video and VR. Our increased efforts toward building frontier AI models have driven a significant further expansion in our computing needs and we expect our computing needs to continue to expand as a result. We have designed and built our own data centers and key portions of our technical infrastructure, and a substantial portion of our technical infrastructure is also provided by third parties. Our ability to provide and continue to innovate our products and services depends on the continued availability of components, power, and network capacity. --- Further, we face significant competition from other companies that are developing their own AI features and technologies, including competition from AI features and technologies that may be similar or superior to our technologies or more cost-effective to develop and deploy, or that otherwise achieve more timely or successful market acceptance. Given the long history of development in the AI sector, other parties may have (or in the future may obtain) patents or other proprietary rights that would prevent, limit, or interfere with our ability to make, use, or sell our own AI features. Our AI initiatives also depend on our access to data to effectively train our models, which is subject to risks related to the availability or costs of data, regulatory or other legal developments, or other factors, as well as our ability to attract and retain specialized personnel in a limited and competitive talent market. Further, our ability to continue to develop and effectively deploy AI technologies is dependent on access to specific third-party equipment, technology, and other technical and physical infrastructure, such as processing hardware, network cap

Microsoft returned $12.7 billion to shareholders in the form of dividends and share repurchases in the second quarter of fiscal year 2026, an increase of 32% compared to the second quarter of fiscal year 2025. Business Outlook Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast. Quarterly Highlights, Product Releases, and Customer Stories Every quarter Microsoft delivers hundreds of products, services, and enhancements. These releases are driven by years of significant research and development investments, to empower customers with greater productivity, security, and differentiated value. This momentum is reflected in stories that showcase how our technology is shaping industries and driving customer success. We share innovation updates on our product blogs across Azure, Microsoft 365, and more on our Official Microsoft blog. Webcast Details Satya Nadella, chairman and chief executive officer, Amy Hood, executive vice president and chief financial officer, Alice Jolla, chief accounting officer, Keith Dolliver, corporate secretary and deputy general counsel, and Jonathan Neilson, vice p

Contract Balances and Other Receivables As of December 31, 2025 and June 30, 2025, long-term accounts receivable, net of allowance for doubtful accounts, was $5.3 billion and $5.2 billion, respectively, and is included in other long-term assets in our consolidated balance sheets. As of December 31, 2025 and June 30, 2025, other receivables related to activities to facilitate the purchase of server components were $15.1 billion and $8.2 billion, respectively, and are included in other current assets in our consolidated balance sheets. We record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of December 31, 2025 and June 30, 2025, our financing receivables, net were $2.7 billion and $4.3 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance for doubtful accounts which reflects our best estimate of credit losses inherent in the accounts receivable and financing receivable balances. We determine the --- Depreciation expense was $7.9 billion and $15.0 billion for the three and six months ended December 31, 2025, respectively, and $5.2 billion and $9.9 billion for the three and six months ended December 31, 2024, respectively. As of December 31, 2025 and June 30, 2025, purchases of property and equipment remaining in accounts payable were $23.1 billion and $6.9 billion, respectively. --- Our Microsoft Cloud revenue, which includes Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365, was $51.5 billion and $100.6 billion for the three and six months ended December 31, 2025, respectively, and $40.9 billion and $79.8 billion for the three and six months ended December 31, 2024, respectively. These amounts are included in Server products and cloud services, Microsoft 365 Commercial products and cloud services, LinkedIn, and Dynamics products and cloud services in the table above. --- Reportable Segments We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting. Additional information on our reportable segments is contained in Note 16 – Segment Information and Geographic Data of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q). Metrics We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q). Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of Am --- Adjusted net income and adjusted diluted earnings per share (“EPS”) are non-GAAP financial measures. These non-GAAP financial measures exclude net gains and losses from investments in OpenAI. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results. Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024 Revenue increased $11.6 billion or 17% driven by Intelligent Cloud and Productivity and Business Processes, offset in part by More Personal Computing. Intelligent Cloud revenue inc

Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts expected to be invoiced and recognized as revenue in future periods, was $631 billion as of December 31, 2025. Estimating revenue that will be allocated to remaining performance obligations can involve significant judgments, including identifying and assessing variable consideration and potential renegotiation of commitments. We consider factors such as the nature of the terms and duration of the contract across our portfolio of contracts. Revenue allocated to remaining performance obligations related to the commercial portion of revenue was $625 billion as of December 31, 2025, with a weighted average duration of approximately 2.5 years. We expect to recognize approximately 25% of both our total company remaining performance obligation revenue and commercial remaining performance obligation revenue over the next 12 months and the remainder thereafter. --- As of December 31, 2025, we had additional leases, primarily for datacenters, that had not yet commenced of $155.1 billion. These leases will commence between fiscal year 2026 and fiscal year 2031 with lease terms of 1 year to 20 years. --- All repurchases were made using cash resources. Shares repurchased during fiscal year 2026 were under the share repurchase program approved on September 16, 2024. Shares repurchased during fiscal year 2025 were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $1.5 billion and $3.1 billion for the three and six months ended December 31, 2025, respectively, and $1.5 billion and $2.8 billion for the three and six months ended December 31, 2024, respectively. Dividends Our Board of Directors declared the following dividends: --- LIQUIDITY AND CAPITAL RESOURCES We expect existing cash, cash equivalents, short-term investments, cash flows from operations, and access to capital markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as dividends, share repurchases, debt maturities, and material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. Cash, Cash Equivalents, and Investments Cash, cash equivalents, and short-term investments totaled $89.5 billion and $94.6 billion as of December 31, 2025 and June 30, 2025, respectively. Equity and other investments were $21.2 billion and $15.4 billion as of December 31, 2025 and June 30, 2025, respectively. Our short-term investments are primarily intended to facilitate liquidity and capital preservation. They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated securities to diversify risk. Our fixed-income investments are exposed to interest rate --- We returned $12.7 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2026. Refer to Note 14 – Stockholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion regarding share repurchases and dividends.

Operating expenses increased $1.6 billion or 5% driven by research and development investments in compute capacity and AI talent, as well as impairment charges in our Gaming business. Operating income increased $14.0 billion or 23% with growth across each of our segments. Revenue, gross margin, and operating income included a favorable foreign currency impact of 2%, 2%, and 3%, respectively. --- •Operating expenses increased $424 million or 6% driven by research and development investments in compute capacity and AI talent, as well as higher advertising expenses. --- •Operating expenses increased $180 million or 3% driven by research and development investments in compute capacity and AI talent. --- •Operating expenses increased $236 million or 6% driven by impairment charges in our Gaming business and research and development investments in compute capacity and AI talent. --- •Operating expenses increased $809 million or 6% driven by research and development investments in compute capacity and AI talent, as well as higher advertising expenses. --- •Operating expenses increased $397 million or 4% driven by research and development investments in compute capacity and AI talent. --- •Operating expenses increased $369 million or 5% driven by impairment charges in our Gaming business and research and development investments in compute capacity and AI talent. --- Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include technology development costs, including AI training and other infrastructure costs, third-party development and programming costs, and the amortization of purchased software code and services content. Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024 Research and development expenses increased $587 million or 7% driven by investments in compute capacity and AI talent and impairment charges in our Gaming business. Six Months Ended December 31, 2025 Compared with Six Months Ended December 31, 2024 Research and development expenses increased $1.2 billion or 8% driven by investments in compute capacity and AI talent and impairment charges in our Gaming business.

As of November 30, 2025, we had $248 billion of additional lease commitments, substantially all related to data centers and cloud capacity arrangements, that are generally expected to commence between the third quarter of fiscal 2026 and fiscal 2028 and for terms of fifteen to nineteen years that were not reflected on our condensed consolidated balance sheets as of November 30, 2025. Unconditional Obligations In the ordinary course of business, we enter into certain unconditional purchase obligations with our suppliers. These are agreements that are enforceable and legally binding and specify terms, including: fixed or minimum quantities --- Our cloud and software business’ total revenues increased by $1.9 billion and $3.4 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods, primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts. In constant currency, cloud applications contributed 19% and 20% and cloud infrastructure contributed 81% and 80% to the growth in cloud revenues in the second quarter and the first half of fiscal 2026, respectively. The Americas region contributed 80% and 82%, the EMEA region contributed 12% and 11% and the Asia Pacific region contributed 8% and 7% to the constant currency revenue growth for this business during the second quarter and the first half of fiscal 2026, respectively. Our cloud and software business’ total expenses increased by $1.2 billion and $2.3 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods. Excluding the unfavorable effects of currency rate fluctuations of 1% in each of the se --- Working capital: The increase in working capital as of November 30, 2025 in comparison to May 31, 2025 was primarily due to favorable impacts from net income; proceeds from the issuance of senior notes in September 2025, net of issuance costs, of $17.9 billion (refer to Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information); $4.3 billion of cash proceeds from the sale of our investments in Ampere; and $1.2 billion of net cash proceeds from our employee stock programs, partially offset by $20.5 billion of cash used for capital expenditures; $3.2 billion of long-term borrowings that were reclassified to current liabilities; $2.8 billion of cash used to pay dividends to our stockholders; and $95 million of cash used for repurchases of our common stock, in each case during the first half of fiscal 2026. Our working capital may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable. Cash, cash equivalents and marketable securities: Cash and cash equivalents primarily consist of deposits held at major banks, money market funds and other sec --- investments in Ampere; $1.2 billion of net cash provided by our employee stock programs; $886 million of cash inflows from commercial paper and other short-term financing, net, partially offset by $20.5 billion of cash used for capital expenditures; $2.8 billion of cash used to pay dividends to our stockholders; $2.1 billion of cash used for scheduled repayments of debt; $203 million of cash outflows for other financing activities, net; and $95 million of cash used for repurchases of our common stock, in each case during the first half of fiscal 2026. Our cash and cash equivalents may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable. --- We issued the senior notes for general corporate purposes, which may include capital expenditures, repayment of indebtedness, future investments or acquisitions and payment of cash dividends on or repurchases of ou

Remaining Performance Obligations from Contracts with Customers Trade receivables, net of allowance for credit losses, and deferred revenues are reported net of related uncollected deferred revenues in our condensed consolidated balance sheets as of November 30, 2025 and May 31, 2025. The revenues recognized during the six months ended November 30, 2025 and 2024 that were included in the opening deferred revenues balances as of May 31, 2025 and 2024 were approximately $7.0 billion and $6.9 billion, respectively. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial in each of the three and six months ended November 30, 2025 and 2024, respectively. Remaining performance obligations were $523.3 billion as of November 30, 2025, of which we expect to recognize approximately 10% as revenues over the next twelve months, 30% over the subsequent month 13 to month 36, 35% over the subsequent month 37 to month 60 and the remainder thereafter. We have elected the optional exemption to not disclose the variable consideration for contracts in which the variable consideration expected to be received over th --- Our cash equivalents and marketable securities investments consist of money market funds, time deposits and marketable equity securities. Marketable securities as presented per our condensed consolidated balance sheets included debt securities with original maturities at the time of purchase greater than three months and the remainder of the debt securities were included in cash and cash equivalents. We classify our marketable debt securities as available-for-sale debt securities at the time of purchase and reevaluate such classification as of each balance sheet date. As of November 30, 2025 and May 31, 2025, all of our marketable debt securities investments mature within one year. Our valuation techniques used to measure the fair values of our instruments that were classified as Level 1 in the table above were derived from quoted market prices and active markets for these instruments that exist. Our valuation techniques used to measure the fair values of Level 2 instruments listed in the table above were derived from the following: non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, --- Our cloud and software business’ total revenues increased by $1.9 billion and $3.4 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods, primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts. In constant currency, cloud applications contributed 19% and 20% and cloud infrastructure contributed 81% and 80% to the growth in cloud revenues in the second quarter and the first half of fiscal 2026, respectively. The Americas region contributed 80% and 82%, the EMEA region contributed 12% and 11% and the Asia Pacific region contributed 8% and 7% to the constant currency revenue growth for this business during the second quarter and the first half of fiscal 2026, respectively. Our cloud and software business’ total expenses increased by $1.2 billion and $2.3 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods. Excluding the unfavorable effects of currency rate fluctuations of 1% in each of the se --- Interest expense increased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, primarily due to higher average borrowings from the issuances of $18.0 billion of senior notes in September 2025 and an aggregate of $14.0 billion of senior notes in the second and third quarters of fiscal 2025, partially offset by lower interest expense due to sc

Leases We have operating and finance leases that primarily relate to certain of our data centers and facilities. The components of lease expense were as follows: --- As of November 30, 2025, we had $248 billion of additional lease commitments, substantially all related to data centers and cloud capacity arrangements, that are generally expected to commence between the third quarter of fiscal 2026 and fiscal 2028 and for terms of fifteen to nineteen years that were not reflected on our condensed consolidated balance sheets as of November 30, 2025. Unconditional Obligations In the ordinary course of business, we enter into certain unconditional purchase obligations with our suppliers. These are agreements that are enforceable and legally binding and specify terms, including: fixed or minimum quantities --- personnel-related, including the cost of providing our cloud and software offerings, salaries and commissions earned by our sales force for the sale of our cloud and software offerings and marketing program costs. Our hardware business provides infrastructure technologies including Oracle Engineered Systems, servers, storage, industry-specific hardware, operating systems, virtualization, management and other hardware-related software to support diverse IT environments. Our hardware business also offers hardware support, which provides customers with software updates for the software components that are essential to the functionality of their hardware products and can also include product repairs, maintenance services and technical support services that are typically delivered and recognized ratably over the contractual term. Costs associated with our hardware business include the cost of hardware products, which consists of expenses for materials and labor used to produce these products by our internal manufacturing operations or by third-party manufacturers; the cost of materials used to repair customer products with eligible support contracts; the cost of labor and infrastructure --- Our cloud and software business’ total revenues increased by $1.9 billion and $3.4 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods, primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts. In constant currency, cloud applications contributed 19% and 20% and cloud infrastructure contributed 81% and 80% to the growth in cloud revenues in the second quarter and the first half of fiscal 2026, respectively. The Americas region contributed 80% and 82%, the EMEA region contributed 12% and 11% and the Asia Pacific region contributed 8% and 7% to the constant currency revenue growth for this business during the second quarter and the first half of fiscal 2026, respectively. Our cloud and software business’ total expenses increased by $1.2 billion and $2.3 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods. Excluding the unfavorable effects of currency rate fluctuations of 1% in each of the se --- Hardware Business Our hardware business’ revenues are generated from the sales of our Oracle Engineered Systems, server, storage and industry-specific hardware offerings. The hardware product and related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation. The revenues for this combined performance obligation are generally recognized at the point in time that the hardware product is delivered to the customer and ownership is transferred to the customer. Our hardware business also earns revenues from the sale of hardware support contracts purchased by our customers at their option and that are generally recognized as revenues ratably as the hardware support

Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $56.5 billion and $56.0 billion as of December 31, 2024 and September 30, 2025. Accumulated amortization associated with finance leases was $41.8 billion and $41.1 billion as of December 31, 2024 and September 30, 2025. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): --- ___________________ (1)Includes non-cancellable financing obligations for fulfillment network and data center facilities. Excluding interest, current financing obligations of $312 million and $281 million are recorded within “Accrued expenses and other” and $7.1 billion and $7.2 billion are recorded within “Other long-term liabilities” as of December 31, 2024 and September 30, 2025. The weighted-average remaining term of the financing obligations was 16.1 years and 15.3 years and the weighted-average imputed interest rate was 3.1% as of December 31, 2024 and September 30, 2025. (2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content, procure energy, acquire property and equipment, and license software that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing, or termination penalties, as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is spec --- ___________________ (1)Includes property and equipment added under finance leases of $182 million and $432 million in Q3 2024 and Q3 2025, and $324 million and $507 million for the nine months ended September 30, 2024 and 2025. (2)Includes property and equipment added under finance leases of $4 million and $545 million in Q3 2024 and Q3 2025, and $85 million and $1.5 billion for the nine months ended September 30, 2024 and 2025. --- Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions, tariff and trade policies, and customer demand and spending, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and service

Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in Q3 2025 and for the nine months ended September 30, 2025, compared to the comparable prior year periods, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by operational efficiencies. Changes in foreign exchange rates increased cost of sales by $929 million for Q3 2025, and by $917 million for the nine months ended September 30, 2025. Shipping costs were $23.5 billion and $25.3 billion in Q3 2024 and Q3 2025, and $67.3 billion and $71.2 billion for the nine months ended September 30, 2024 and 2025. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at --- Guidance We provided guidance on October 30, 2025, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of October 30, 2025, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, tariff and trade policies, and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part II, “Risk Factors.” Fourth Quarter 2025 Guidance •Net sales are expected to be between $206.0 billion and $213.0 billion, or to grow between 10% and 13% compared with fourth quarter 2024. This guidance anticipates a favorable impact of approximately 190 basis points from foreign exchange rates. •Operating income is expected to be between $21.0 billion and $26.0 billion, compared with $21.2 billion in fourth quarter 2024

Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $56.5 billion and $56.0 billion as of December 31, 2024 and September 30, 2025. Accumulated amortization associated with finance leases was $41.8 billion and $41.1 billion as of December 31, 2024 and September 30, 2025. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): --- ___________________ (1)Includes non-cancellable financing obligations for fulfillment network and data center facilities. Excluding interest, current financing obligations of $312 million and $281 million are recorded within “Accrued expenses and other” and $7.1 billion and $7.2 billion are recorded within “Other long-term liabilities” as of December 31, 2024 and September 30, 2025. The weighted-average remaining term of the financing obligations was 16.1 years and 15.3 years and the weighted-average imputed interest rate was 3.1% as of December 31, 2024 and September 30, 2025. (2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content, procure energy, acquire property and equipment, and license software that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing, or termination penalties, as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is spec --- Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions, tariff and trade policies, and customer demand and spending, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and service

As of September 30, 2025, we have entered into leases primarily related to data centers that have not yet commenced with future lease payments of $42.6 billion, including a purchase option considered reasonably certain to be exercised, that are not yet recorded on our Consolidated Balance Sheet. These leases will commence between 2025 and 2031 with non-cancelable lease terms between one and 25 years. 22 --- Note 7. Supplemental Financial Statement Information Accounts Receivable The allowance for credit losses on accounts receivable was $879 million and $918 million as of December 31, 2024 and September 30, 2025, respectively. Property and Equipment, Net Property and equipment, net, consisted of the following (in millions): As of December 31, 2024As of September 30, 2025 Technical infrastructure(1) $139,596 $184,107  Office space43,714 45,715  Corporate and other assets16,519 18,059  Property and equipment, in service199,829 247,881  Less: accumulated depreciation(79,390)(93,950) Add: assets not yet in service50,597 69,856  Property and equipment, net$171,036 $223,787 --- (1)    Additional property and equipment purchases of $3.2 billion and $5.7 billion as of December 31, 2024 and September 30, 2025, respectively, were included in accounts payable. (2)    The amounts related to the European Commission (EC) fines, including any under appeal, are included in accrued expenses and other current liabilities on our Consolidated Balance Sheets. Amounts include the effects of foreign exchange and interest. See Note 10 for further details. (3)    As of September 30, 2025, other accrued expenses and current liabilities included a $1.4 billion accrual for settlement of certain privacy matters. See Note 10 for further details. Accumulated Other Comprehensive Income (Loss) Components of AOCI, net of income tax, were as follows (in millions): Foreign Currency Translation AdjustmentsUnrealized Gains (Losses) on Available-for-Sale InvestmentsUnrealized Gains (Losses) on Cash Flow HedgesTotal Balance as of December 31, 2023$(3,407)$(965)$(30)$(4,402) Other comprehensive income (loss) before reclassifications234 755 (228)761  Amounts excluded from the assessment of hedge effectiveness recorded in AOCI0 0 (52)(52) Amounts reclassified from AOCI0 629 (164)465  Other c --- We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. The total amount of gross unrecognized tax benefits was $12.6 billion and $13.1 billion, of which $10.0 billion and $11.1 billion, if recognized, would affect our effective tax rate, as of December 31, 2024 and September 30, 2025, respectively. Changes to U.S. tax law enacted on July 4, 2025, allow for immediate expensing of domestic research and experimentation costs, accelerated depreciation on eligible capital expenditures, and other tax law changes impacting 2025 with certain changes effective in 2026. These changes are reflected in our results for the three and nine months ended September 30, 2025. --- Employee compensation expenses $5,157 $5,586 $15,489 $16,515  Other costs and expenses 4,249 5,977 11,766 15,929  Total Google Cloud costs and expenses $9,406 $11,563 $27,255 $32,444  (1) Includes the EC fine of $3.5 billion for the three and nine months ended September 30, 2025. Google Services and Google Cloud employee compensation expenses include the costs associated with direct and allocated employees. Google Services and Google Cloud other costs and expenses primarily include direct costs, such as advertising and promotional activities and third-party services fees as well as allocated costs, such as technical infrastructure and office facilities usage costs. Additionally, Google Services other costs and expenses include content and traffic acquisition costs and device costs. See Note 2 for information relating to revenues by geography. 34 --- (1)    See "Use of N

(1)    Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas"). Revenue Backlog As of September 30, 2025, we had $157.7 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud. Revenue backlog represents commitments in customer contracts that have not yet been recognized as revenue. We expect to recognize just over 55% of the revenue backlog as revenues over the next 24 months with the remainder to be recognized thereafter. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by our ability to deliver in accordance with relevant contract terms and when our customers utilize services. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods, and excludes contracts with an original expected term of one year or less and cancellable contracts. Deferred Revenues We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Deferred revenues primarily relate to Google Cloud an --- Note 13. Compensation Plans Stock-Based Compensation For the three months ended September 30, 2024 and 2025, total stock-based compensation (SBC) expense was $5.9 billion and $6.4 billion, including amounts associated with awards we expect to settle in Alphabet stock of $5.7 billion and $6.1 billion, respectively. For the nine months ended September 30, 2024 and 2025, total SBC expense was $17.0 billion and $17.9 billion, including amounts associated with awards we expect to settle in Alphabet stock of $16.4 billion and $17.2 billion, respectively. Stock-Based Award Activities The following table summarizes the activities for unvested Alphabet restricted stock units (RSUs), which include dividend equivalents awarded to holders of unvested stock, for the nine months ended September 30, 2025 (in millions, except per share amounts): --- Capital Expenditures Our capital investments in property and equipment consist primarily of the following major categories: •technical infrastructure, which consists of our investments in servers and network equipment for computing, storage, and networking requirements for ongoing business activities, including AI, and data center land and building construction; and •office facilities, ground-up development projects, and building improvements (also referred to as "fit-outs"). Assets not yet in service are those that are not ready for our intended use, including assets in the process of construction or assembly, and consists primarily of technical infrastructure. The time frame from date of purchase to placement in service of these assets may extend from months to years. For example, our data center construction projects are generally multi-year projects with multiple phases, where we acquire land and buildings, construct buildings, and secure and install servers and network equipment. During the nine months ended September 30, 2024 and 2025, we spent $38.3 billion and $63.6 billion on capital expenditures, respectively. We expect full year 2025 capital expenditures to exceed full

In January 2025, we completed an assessment of the useful lives of property and equipment, which resulted in an increase in the estimated useful lives of most servers and network assets to 5.5 years, effective January 1, 2025. Based on the servers and network assets placed in service as of December 31, 2024, the financial impact of this change in estimate included a reduction in depreciation expense of $2.29 billion and an increase in net income of $1.96 billion, or $0.76 per diluted share, for the nine months ended September 30, 2025. --- Construction in progress includes costs mostly related to construction of data centers, network infrastructure and servers. Depreciation expense on property and equipment was $4.76 billion and $3.96 billion for the three months ended September 30, 2025 and 2024, respectively, and $12.88 billion and $10.88 billion for the nine months ended September 30, 2025 and 2024, respectively. Within property and equipment, our servers and network assets depreciation expenses were $3.60 billion and $2.97 billion for the three months ended September 30, 2025 and 2024, respectively, and $9.34 billion and $7.96 billion for the nine months ended September 30, 2025 and 2024, respectively. We extended the estimated useful lives of most servers and network assets to 5.5 years, effective January 1, 2025. See Note 1 — Summary of Significant Accounting Policies - Use of Estimates. Held-for-sale Assets --- At the beginning of June 2025, we approved a plan to dispose of certain data center assets and reclassified $2.04 billion of these assets as held-for-sale. These assets mostly consisted of construction in progress and land, which are reported at the lower of their carrying amounts or fair values less costs to sell. No loss was recognized upon reclassification, as these assets are expected to be disposed of within the next twelve months through a contribution to a third party for the purpose of co-developing data centers. As of September 30, 2025, total held-for-sale assets were $4.66 billion, included within prepaid expenses and other current assets on our condensed consolidated balance sheets. In October 2025, we contributed the held-for-sale assets to a newly formed joint venture. For information regarding the joint venture arrangement, see Note 13 — Subsequent Event. --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of September 30, 2025. These lease obligations were approximately $58.14 billion, mostly for data centers, colocations, and certain network infrastructure, which will commence between the remainder of 2025 and 2030. --- We also have $81.19 billion of non-cancelable contractual commitments as of September 30, 2025. These commitments are mostly related to third-party cloud capacity arrangements and our continued investments in servers and network infrastructure, consumer hardware products in Reality Labs, and data centers, with $17.79 billion and $8.62 billion due in 2025 and 2026, respectively. --- On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, introducing several significant U.S. income tax provisions that will reduce our U.S. federal cash tax payments for the remainder of 2025 and future years. The provisions include the immediate expensing of domestic research and development costs and certain capital expenditures beginning in 2025, as well as an enhanced deduction for foreign-derived intangible income effective in 2026. The benefits from these provisions are limited by the 15% Corporate Alternative Minimum Tax (CAMT). As a result, we recorded a $15.93 billion discrete charge related to the implementation as of the enactment date of OBBBA, including recognition of a valuation allowance against our U.S. federal deferred tax assets. In determining the valuation allowance, our accounting policy incorporates the expected impact of future years’ CAMT in assessing the real

Total deferred revenue was $924 million and $772 million as of September 30, 2025 and December 31, 2024, respectively. As of September 30, 2025, we expect most of the deferred revenue to be realized in less than a year. 13 --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of September 30, 2025. These lease obligations were approximately $58.14 billion, mostly for data centers, colocations, and certain network infrastructure, which will commence between the remainder of 2025 and 2030. --- Our gross unrecognized tax benefits were $16.98 billion and $15.13 billion as of September 30, 2025 and December 31, 2024, respectively. These unrecognized tax benefits primarily related to the uncertainties with our research tax credits and transfer pricing with our foreign subsidiaries, which include licensing of intellectual property, providing services and other transactions. If the gross unrecognized tax benefits as of September 30, 2025 were realized in a future period, this would result in a tax benefit of $10.98 billion within our provision for income taxes at such time. The amount of interest and penalties accrued was $2.82 billion and $2.21 billion as of September 30, 2025 and December 31, 2024, respectively. We expect to continue to accrue unrecognized tax benefits for certain recurring tax positions. --- On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, introducing several significant U.S. income tax provisions that will reduce our U.S. federal cash tax payments for the remainder of 2025 and future years. The provisions include the immediate expensing of domestic research and development costs and certain capital expenditures beginning in 2025, as well as an enhanced deduction for foreign-derived intangible income effective in 2026. The benefits from these provisions are limited by the 15% Corporate Alternative Minimum Tax (CAMT). As a result, we recorded a $15.93 billion discrete charge related to the implementation as of the enactment date of OBBBA, including recognition of a valuation allowance against our U.S. federal deferred tax assets. In determining the valuation allowance, our accounting policy incorporates the expected impact of future years’ CAMT in assessing the realizability of our deferred tax assets. --- We are also making significant investments in our metaverse and wearables efforts, including developing virtual, augmented, and mixed reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our RL investments include expenses relating to technology development across these efforts. Many of our RL investments are directed toward long-term, cutting-edge research and development for products that may only be fully realized in the next decade. During the nine months ended September 30, 2025, our RL segment reduced our overall operating profit by approximately $13.17 billion, and we continue to expect our full-year RL operating losses to increase in 2025. We expect this will be a complex, evolving, and long-term initiative, and our ability to support our RL efforts is dependent on generating sufficient profits from other areas of our business. We are investing now because we believe this will become the next computing platform and will unlock monetization opportunities for businesses, developers, and creators, including around advertising, hardware, and digital goods. 35 --- Advertising revenue in the three and nine months ended September 30, 2025 increased $10.20 billion, or 26%, and $24.19 billion, or 21%, respectively, compared to the same periods in 2024, due to increases in ad impressions delivered and average price per ad. During the three and nine months ended September 30, 2025, ad impressions delivered increased by 14% and 10%, respectively, year-over-year, as compared with increases of 7% and 12%, respectively in the same periods in 2024.

Contract Balances and Other Receivables As of September 30, 2025 and June 30, 2025, long-term accounts receivable, net of allowance for doubtful accounts, was $5.0 billion and $5.2 billion, respectively, and is included in other long-term assets in our consolidated balance sheets. As of September 30, 2025 and June 30, 2025, other receivables related to activities to facilitate the purchase of server components were $14.4 billion and $8.2 billion, respectively, and are included in other current assets in our consolidated balance sheets. We record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of September 30, 2025 and June 30, 2025, our financing receivables, net were $3.9 billion and $4.3 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance for doubtful accounts which reflects our best estimate of credit losses inherent in the accounts receivable and financing receivable balances. We determine th --- As of September 30, 2025 and June 30, 2025, purchases of property and equipment remaining in accounts payable were $18.6 billion and $6.9 billion, respectively. --- Our Microsoft Cloud revenue, which includes Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365, was $49.1 billion and $38.9 billion for the three months ended September 30, 2025 and 2024, respectively. These amounts are included in Server products and cloud services, Microsoft 365 Commercial products and cloud services, LinkedIn, and Dynamics products and cloud services in the table above. --- Additional information on our reportable segments is contained in Note 16 – Segment Information and Geographic Data of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q). Metrics We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q). Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and growth comparisons relate to the corresponding period of last fiscal year. In the first quarter of fiscal year 2026, we made updates to our metrics to align with how we manage and monitor certain businesses. As part of these updates, Microsoft 365 Consumer subscriber --- Adjusted net income and adjusted diluted earnings per share (“EPS”) are non-GAAP financial measures. These non-GAAP financial measures exclude net losses from investments in OpenAI. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results. Three Months Ended September 30, 2025 Compared with Three Months Ended September 30, 2024 Revenue increased $12.1 billion or 18% with growth across each of our segments. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue increased driven by Windows OEM and Search and news advertising, offset in part by declines in our hardware businesses, including Devices and Xbox hardware. Cost of revenue increased $3.9 billion or 20% driven by growth in Microsoft Cloud. Gross margin inc

Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $398 billion as of September 30, 2025, of which $392 billion is related to the commercial portion of revenue. We expect to recognize approximately 40% of our total company remaining performance obligation revenue over the next 12 months and the remainder thereafter. --- As of September 30, 2025, we had additional leases, primarily for datacenters, that had not yet commenced of $106.2 billion. These leases will commence between fiscal year 2026 and fiscal year 2031 with lease terms of 1 year to 20 years. --- All repurchases were made using cash resources. Shares repurchased during the first quarter of fiscal year 2026 were under the share repurchase program approved on September 16, 2024. Shares repurchased during the first quarter of fiscal year 2025 were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $1.7 billion and $1.3 billion for the three months ended September 30, 2025 and 2024, respectively. Dividends Our Board of Directors declared the following dividends: --- LIQUIDITY AND CAPITAL RESOURCES We expect existing cash, cash equivalents, short-term investments, cash flows from operations, and access to capital markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as dividends, share repurchases, debt maturities, and material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. Cash, Cash Equivalents, and Investments Cash, cash equivalents, and short-term investments totaled $102.0 billion and $94.6 billion as of September 30, 2025 and June 30, 2025, respectively. Equity and other investments were $11.5 billion and $15.4 billion as of September 30, 2025 and June 30, 2025, respectively. Our short-term investments are primarily intended to facilitate liquidity and capital preservation. They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated securities to diversify risk. Our fixed-income investments are exposed to interest rat --- We returned $10.7 billion to shareholders in the form of share repurchases and dividends in the first quarter of fiscal year 2026. Refer to Note 14 – Stockholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion regarding share repurchases and dividends.

Operating expenses increased $735 million or 5% driven by investments in cloud and AI engineering, including compute capacity and AI talent to support product development across the portfolio. Operating income increased $7.4 billion or 24% with growth across each of our segments. Gross margin and operating income both included a favorable foreign currency impact of 2%. --- •Operating expenses increased $385 million or 6% driven by investments in cloud and AI engineering, including compute capacity and AI talent to support product development that benefits the entire portfolio. --- •Operating expenses increased $217 million or 4% driven by investments in cloud and AI engineering, including compute capacity and AI talent to support product development that benefits the entire portfolio. --- •Operating expenses increased $133 million or 4% driven by investments in AI talent and compute capacity to support product development that benefits the entire portfolio. --- Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include technology development costs, including AI training and other infrastructure costs, third-party development and programming costs, and the amortization of purchased software code and services content. Three Months Ended September 30, 2025 Compared with Three Months Ended September 30, 2024 Research and development expenses increased $602 million or 8% driven by investments in cloud and AI engineering, including compute capacity and AI talent to support product development across the portfolio. Sales and Marketing

As of August 31, 2025, we had $99.8 billion of additional lease commitments, substantially all for data centers, that are generally expected to commence between the second quarter of fiscal 2026 and fiscal 2028 and for terms of ten to sixteen years that were not reflected on our condensed consolidated balance sheets as of August 31, 2025. Subsequent to August 31, 2025, we entered into $6.6 billion of additional lease commitments for data centers that are generally expected to commence between fiscal 2027 and fiscal 2028 and for terms of fourteen to fifteen years. --- Our cloud and software business’ total revenues increased by $1.5 billion in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts. In constant currency, cloud applications and cloud infrastructure contributed 23% and 77%, respectively, of the growth in cloud revenues in the first quarter of fiscal 2026. The Americas, the EMEA and the Asia Pacific regions contributed 86%, 9% and 5%, respectively, to the constant currency revenue growth for this business during the first quarter of fiscal 2026. Our cloud and software business’ total expenses increased by $1.0 billion in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025. Excluding the unfavorable effects of currency rate fluctuations of less than 1% in the first quarter of fiscal 2026, the constant currency increase in expenses in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 was primarily due to a $929 million increase in infrastructure expenses and a --- Working capital: The decrease in working capital as of August 31, 2025 in comparison to May 31, 2025 was primarily due to $8.5 billion of cash used for capital expenditures; $3.1 billion of long-term borrowings that were reclassified to current liabilities; $1.4 billion of cash used to pay dividends to our stockholders; $97 million of cash used for purchases of non-current investments; and $95 million of cash used for repurchases of our common stock, partially offset by favorable impacts from net income; and $1.2 billion of net cash proceeds from our employee stock programs, in each case during the first quarter of fiscal 2026. Our working capital may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable. Cash, cash equivalents and marketable securities: Cash and cash equivalents primarily consist of deposits held at major banks, money market funds and other securities with original maturities of 90 days or less. Marketable securities consist primarily of time deposits with original maturities at the time of purchase greater than 90 days. The decrease in cash, cash equivalents and marketable securities as of Aug --- Cash flows from operating activities: Our largest source of operating cash flows is cash collections from our customers following the purchase and renewal of their cloud and software support agreements. Customers for these agreements are generally billed in advance of services being provided. Over the course of a fiscal year, we also generate cash from the sales of software licenses, hardware offerings and other services. Our primary uses of cash from operating activities are typically for employee-related expenditures, material and manufacturing costs related to the production of our hardware products, taxes, interest payments and leased facilities. Net cash provided by operating activities increased by $713 million in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, primarily due to higher net income adjusted for certain non-cash charges, partially offset by lower cash favorable working capital changes, net. Cash flows from investing activities: The changes i

Remaining Performance Obligations from Contracts with Customers Trade receivables, net of allowance for credit losses, and deferred revenues are reported net of related uncollected deferred revenues in our condensed consolidated balance sheets as of August 31, 2025 and May 31, 2025. The revenues recognized during the three months ended August 31, 2025 and 2024 that were included in the opening deferred revenues balances as of May 31, 2025 and 2024 were approximately $4.0 billion and $3.9 billion, respectively. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial in each of the three months ended August 31, 2025 and 2024. Remaining performance obligations were $455.3 billion as of August 31, 2025, of which we expect to recognize approximately 10% as revenues over the next twelve months, 25% over the subsequent month 13 to month 36, 34% over the subsequent month 37 to month 60 and the remainder thereafter. We have elected the optional exemption to not disclose the variable consideration for contracts in which the variable consideration expected to be received over the duration of the contract i --- Our cash equivalents and marketable securities investments consist of money market funds, time deposits and marketable equity securities. Marketable securities as presented per our condensed consolidated balance sheets included debt securities with original maturities at the time of purchase greater than three months and the remainder of the debt securities were included in cash and cash equivalents. We classify our marketable debt securities as available-for-sale debt securities at the time of purchase and reevaluate such classification as of each balance sheet date. As of August 31, 2025 and May 31, 2025, all of our marketable debt securities investments mature within one year. Our valuation techniques used to measure the fair values of our instruments that were classified as Level 1 in the table above were derived from quoted market prices and active markets for these instruments that exist. Our valuation techniques used to measure the fair values of Level 2 instruments listed in the table above were derived from the following: non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, su --- Our cloud and software business’ total revenues increased by $1.5 billion in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts. In constant currency, cloud applications and cloud infrastructure contributed 23% and 77%, respectively, of the growth in cloud revenues in the first quarter of fiscal 2026. The Americas, the EMEA and the Asia Pacific regions contributed 86%, 9% and 5%, respectively, to the constant currency revenue growth for this business during the first quarter of fiscal 2026. Our cloud and software business’ total expenses increased by $1.0 billion in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025. Excluding the unfavorable effects of currency rate fluctuations of less than 1% in the first quarter of fiscal 2026, the constant currency increase in expenses in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 was primarily due to a $929 million increase in infrastructure expenses and a --- Interest expense increased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, primarily due to higher average borrowings resulting from our issuance of $14.0 billion of senior notes in fiscal 2025, partially offset by lower interest expense due to scheduled repayments of debt made during the first quarter of fiscal 2026 and full year of fiscal 2

Principles of Consolidation The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary, including certain entities in India and certain entities that support our healthcare services and production and distribution of video content. Intercompany balances and transactions between consolidated entities are eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, impairment of property and equipment and operating leases, valuation --- Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $56.5 billion and $56.1 billion as of December 31, 2024 and June 30, 2025. Accumulated amortization associated with finance leases was $41.8 billion and $41.5 billion as of December 31, 2024 and June 30, 2025. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): --- ___________________ (1)Includes non-cancellable financing obligations for fulfillment network and data center facilities. Excluding interest, current financing obligations of $312 million and $280 million are recorded within “Accrued expenses and other” and $7.1 billion and $7.2 billion are recorded within “Other long-term liabilities” as of December 31, 2024 and June 30, 2025. The weighted-average remaining term of the financing obligations was 16.1 years and 15.5 years and the weighted-average imputed interest rate was 3.1% as of December 31, 2024 and June 30, 2025. (2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content, procure energy, acquire property and equipment, and license software that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified. Energy agreements based on act --- ___________________ (1)Includes property and equipment added under finance leases of $135 million and $21 million in Q2 2024 and Q2 2025, and $142 million and $75 million for the six months ended June 30, 2024 and 2025. (2)Includes property and equipment added under finance leases of $46 million and $916 million in Q2 2024 and Q2 2025, and $81 million and $916 million for the six months ended June 30, 2024 and 2025. --- Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, beli

Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in Q2 2025 and for the six months ended June 30, 2025, compared to the comparable prior year periods, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by fulfillment network efficiencies, including lower transportation costs. Changes in foreign exchange rates increased cost of sales by $898 million for Q2 2025, but did not significantly impact cost of sales for the six months ended June 30, 2025. Shipping costs were $22.0 billion and $23.4 billion in Q2 2024 and Q2 2025, and $43.8 billion and $45.9 billion for the six months ended June 30, 2024 and 2025. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to continue to increase to the exte --- Guidance We provided guidance on July 31, 2025, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of July 31, 2025, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, tariff and trade policies, and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part II, “Risk Factors.” Third Quarter 2025 Guidance •Net sales are expected to be between $174.0 billion and $179.5 billion, or to grow between 10% and 13% compared with third quarter 2024. This guidance anticipates a favorable impact of approximately 130 basis points from foreign exchange rates. •Operating income is expected to be between $15.5 billion and $20.5 billion, compared with $17.4 billion in third quarter 2024. •This

In January 2025, we completed an assessment of the useful lives of property and equipment, which resulted in an increase in the estimated useful lives of most servers and network assets to 5.5 years, effective January 1, 2025. Based on the servers and network assets placed in service as of December 31, 2024, the financial impact of this change in estimate included a reduction in depreciation expense of $1.58 billion and an increase in net income of $1.34 billion, or $0.52 per diluted share, for the six months ended June 30, 2025. --- Construction in progress includes costs mostly related to construction of data centers, network infrastructure and servers. Depreciation expense on property and equipment was $4.28 billion and $3.58 billion for the three months ended June 30, 2025 and 2024, respectively, and $8.12 billion and $6.92 billion for the six months ended June 30, 2025 and 2024, respectively. Within property and equipment, our servers and network assets depreciation expenses were $3.12 billion and $2.64 billion for the three months ended June 30, 2025 and 2024, respectively, and $5.74 billion and $4.99 billion for the six months ended June 30, 2025 and 2024, respectively. We extended the estimated useful lives of most servers and network assets to 5.5 years, effective January 1, 2025. See Note 1 — Summary of Significant Accounting Policies - Use of Estimates. Held-for-sale Assets --- At the beginning of June 2025, we approved a plan to dispose of certain data center assets and reclassified $2.04 billion of these assets as held-for-sale. These assets mostly consisted of construction in progress and land, which are reported at the lower of their carrying amounts or fair values less costs to sell. No loss was recognized upon reclassification, as these assets are expected to be disposed of within the next twelve months through a contribution to a third party for the purpose of co-developing data centers. As of June 30, 2025, total held-for-sale assets were $3.26 billion, included within prepaid expenses and other current assets on our condensed consolidated balance sheets. --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of June 30, 2025. These lease obligations were approximately $52.56 billion, mostly for data centers, certain network infrastructure, and colocations, which will commence between the remainder of 2025 and 2034. --- We also have $27.95 billion of non-cancelable contractual commitments as of June 30, 2025. These commitments are mostly related to our investments in servers and network infrastructure, consumer hardware products in Reality Labs, and data centers, with $18.30 billion due in 2025. --- •Net income was $18.34 billion, with diluted earnings per share (EPS) of $7.14 for the three months ended June 30, 2025. •Capital expenditures, including principal payments on finance leases, were $17.01 billion for the three months ended June 30, 2025. •Share repurchases of our Class A common stock were $9.76 billion and total dividend and dividend equivalent payments were $1.33 billion for the three months ended June 30, 2025. •Cash, cash equivalents, and marketable securities were $47.07 billion as of June 30, 2025. •Effective tax rate was 11% for the three months ended June 30, 2025. •Headcount was 75,945 as of June 30, 2025, an increase of 7% year-over-year. --- We remain focused on operating efficiently while investing in significant opportunities. In the six months ended June 30, 2025, 82% of our total costs and expenses were recognized in FoA and 18% were recognized in RL. Our FoA investments include expenses relating to headcount, data centers, and technical infrastructure as part of our efforts to develop our apps and our advertising services. These efforts include significant investments in AI initiatives, including generative AI and superintelligence, to, among other things, recommend relevant co

Total deferred revenue was $876 million and $772 million as of June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025, we expect most of the deferred revenue to be realized in less than a year. 13 --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of June 30, 2025. These lease obligations were approximately $52.56 billion, mostly for data centers, certain network infrastructure, and colocations, which will commence between the remainder of 2025 and 2034. --- Our gross unrecognized tax benefits were $16.78 billion and $15.13 billion as of June 30, 2025 and December 31, 2024, respectively. These unrecognized tax benefits primarily related to the uncertainties with our research tax credits and transfer pricing with our foreign subsidiaries, which include licensing of intellectual property, providing services and other transactions. If the gross unrecognized tax benefits as of June 30, 2025 were realized in a future period, this would result in a tax benefit of $10.98 billion within our provision for income taxes at such time. The amount of interest and penalties accrued was $2.60 billion and $2.21 billion as of June 30, 2025 and December 31, 2024, respectively. We expect to continue to accrue unrecognized tax benefits for certain recurring tax positions. --- We are also making significant investments in our metaverse and wearables efforts, including developing virtual, augmented, and mixed reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our RL investments include expenses relating to technology development across these efforts. Many of our RL investments are directed toward long-term, cutting-edge research and development for products that may only be fully realized in the next decade. During the six months ended June 30, 2025, our RL segment reduced our overall operating profit by approximately $8.74 billion, and we continue to expect our full-year RL operating losses to increase in 2025. We expect this will be a complex, evolving, and long-term initiative, and our ability to support our RL efforts is dependent on generating sufficient profits from other areas of our business. We are investing now because we believe this will become the next computing platform and will unlock monetization opportunities for businesses, developers, and creators, including around advertising, hardware, and digital goods. 31 --- Advertising revenue in the three and six months ended June 30, 2025 increased $8.23 billion, or 21%, and $13.99 billion, or 19%, respectively, compared to the same periods in 2024, due to increases in ad impressions delivered and average price per ad. During the three and six months ended June 30, 2025, ad impressions delivered increased by 11% and 8%, respectively, year-over-year, as compared with increases of 10% and 15%, respectively in the same periods in 2024. Ad impressions delivered during the three and six months ended June 30, 2025 grew in all regions, especially in Asia-Pacific, which was driven by increases in users and their engagement on our products. During the three and six months ended June 30, 2025, the average price per ad increased by 9% and 10%, respectively, year-over-year, as compared with increases of 10% and 8%, respectively, in the same periods in 2024. The increases in average price per ad were driven by an increase in advertising demand, which we believe is mostly due to ongoing improvements to our ad performance from our ad targeting and measurement tools. This increase was partially offset by a higher number of ad impressions delivered, especially in ge --- We anticipate making capital expenditures of approximately $66 billion to $72 billion in 2025 to support our core business and AI efforts. --- Our operating and finance leases include data centers, offices, certain network infrastructure and colocations. In additio

Metrics We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements (Part II, Item 8 of this Form 10-K). Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and growth comparisons relate to the corresponding period of last fiscal year. In the first quarter of fiscal year 2025, we made updates to our metrics in connection with the segment changes described above. These changes align our metrics with how we manage and monitor certain businesses. The key change was bringing the commercial components of Microsoft 365 together and creating a new Microsoft 365 Commercial cloud revenue growth metric. Other changes i --- •Gross margin increased $11.2 billion or 13% driven by growth in Microsoft 365 Commercial cloud. Gross margin percentage decreased slightly primarily driven by the impact of scaling our AI infrastructure, offset in part by efficiency gains in Microsoft 365 Commercial cloud. --- Intelligent Cloud Revenue increased $18.8 billion or 21%. •Server products and cloud services revenue increased $18.6 billion or 23% driven by Azure and other cloud services. Azure and other cloud services revenue grew 34% driven by demand for our portfolio of services. Server products revenue decreased 3% driven by a decrease in transactional purchasing with continued customer shift to cloud offerings. --- •Gross margin increased $8.2 billion or 14% driven by growth in Azure. Gross margin percentage decreased driven by the impact of scaling our AI infrastructure, offset in part by efficiency gains in Azure. --- During fiscal years 2025, 2024, and 2023, depreciation expense was $22.0 billion, $15.2 billion, and $11.0 billion, respectively. As of June 30, 2025, 2024, and 2023, purchases of property and equipment remaining in accounts payable were $6.9 billion, $4.3 billion, and $3.8 billion, respectively. As of June 30, 2025, we have committed $32.1 billion for the construction of new buildings, building improvements, and leasehold improvements, primarily related to datacenters. --- Our Microsoft Cloud revenue, which includes Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365, was $168.9 billion, $137.7 billion, and $111.6 billion in fiscal years 2025, 2024, and 2023, respectively. These amounts are included in Microsoft 365 Commercial products and cloud services, Server products and cloud services, LinkedIn, and Dynamics products and cloud services in the table above.

All share repurchases were made using cash resources. Our share repurchases may occur through open market purchases or pursuant to a Rule 10b5-1 trading plan. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards. On September 16, 2024, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in April 2025, following completion of the program approved on September 14, 2021, has no expiration date, and may be terminated at any time. Our Board of Directors declared the following dividends during the fourth quarter of fiscal year 2025: --- We returned $9.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2025. Refer to Note 15 – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding share repurchases and dividends. RECENT SALES OF UNREGISTERED SECURITIES In May 2025, as consideration for the acquisition of a business, we issued 117,623 shares of common stock to the seller in connection with the closing in reliance on exemption from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof because the issuance of securities did not involve a public offering. --- ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K). This section generally discusses the results of our operations for the year ended June 30, 2025 compared to the year ended June 30, 2024. For a discussion of the year ended June 30, 2024 compared to the year ended June 30, 2023, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, 2024 and our Form 8-K filed on December 3, 2024. OVERVIEW Microsoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly, with a mission to empower every person and every organ --- Fiscal Year 2025 Compared with Fiscal Year 2024 Revenue increased $36.6 billion or 15% with growth across each of our segments. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue increased driven by Gaming and Search and news advertising. Cost of revenue increased $13.7 billion or 19% driven by growth in Microsoft Cloud. Gross margin increased $22.9 billion or 13% with growth across each of our segments. •Gross margin percentage decreased slightly driven by Intelligent Cloud, offset in part by More Personal Computing. --- Reportable Segments Fiscal Year 2025 Compared with Fiscal Year 2024 Productivity and Business Processes Revenue increased $14.0 billion or 13%. •Microsoft 365 Commercial products and cloud services revenue increased $10.8 billion or 14%. Microsoft 365 Commercial cloud revenue grew 15% with Microsoft 365 Commercial seat growth of 6% driven by small and medium businesses and frontline worker offerings, as well as growth in revenue per user. Microsoft 365 Commercial products revenue grew 7% driven by the Windows Commercial on-premises components of Microsoft 365 suite sales and an increase in Office transactional purchasing with the launch of Office 2024. --- Fiscal Year 2025 Compared with Fiscal Year 2024 Resear

As of June 30, 2025, we have entered into leases primarily related to data centers that have not yet commenced with future lease payments of $23.9 billion, that are not yet recorded on our Consolidated Balance Sheets. These leases will commence between 2025 and 2031 with non-cancelable lease terms between one and 25 years. 22 --- Note 7. Supplemental Financial Statement Information Accounts Receivable The allowance for credit losses on accounts receivable was $879 million and $878 million as of December 31, 2024 and June 30, 2025, respectively. Property and Equipment, Net Property and equipment, net, consisted of the following (in millions): As of December 31, 2024As of June 30, 2025 Technical infrastructure(1) $139,596 $167,467  Office space43,714 45,493  Corporate and other assets16,519 17,920  Property and equipment, in service199,829 230,880  Less: accumulated depreciation(79,390)(89,349) Add: assets not yet in service50,597 61,700  Property and equipment, net$171,036 $203,231 --- (1)    Additional property and equipment purchases of $3.2 billion and $3.8 billion as of December 31, 2024 and June 30, 2025, respectively, were included in accounts payable. (2)    The amounts related to the European Commission (EC) fines, including any under appeal, are included in accrued expenses and other current liabilities on our Consolidated Balance Sheets. Amounts include the effects of foreign exchange and interest. See Note 10 for further details. (3)     As of June 30, 2025, other accrued expenses and current liabilities included a $1.4 billion charge related to a settlement in principle of certain legal matters. Accumulated Other Comprehensive Income (Loss) Components of AOCI, net of income tax, were as follows (in millions): Foreign Currency Translation AdjustmentsUnrealized Gains (Losses) on Available-for-Sale InvestmentsUnrealized Gains (Losses) on Cash Flow HedgesTotal Balance as of December 31, 2023$(3,407)$(965)$(30)$(4,402) Other comprehensive income (loss) before reclassifications(950)(453)367 (1,036) Amounts excluded from the assessment of hedge effectiveness recorded in AOCI0 0 51 51  Amounts reclassified from AOCI0 541 (166)375  Other comprehensive income ( --- •Operating expenses were $26.1 billion, an increase of 20% year over year, primarily driven by increases in expenses related to legal and other matters, employee compensation expenses, and depreciation expense. Other Information: •General and administrative expenses of $5.2 billion for the three months ended June 30, 2025 included a $1.4 billion charge in our Google Services segment related to a settlement in principle of certain legal matters. •In May 2025, Alphabet issued fixed-rate senior unsecured notes for net proceeds of $12.5 billion to be used for general corporate purposes. For additional information, see Note 6 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. •Repurchases of Class A and Class C shares were $2.5 billion and $10.7 billion, respectively, totaling $13.3 billion for the three months ended June 30, 2025. For additional information, see Note 11 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. •Operating cash flow was $27.7 billion for the three months ended June 30, 2025. •Capital expenditures, which primarily reflected investments in technical i --- (1)In addition to the costs included in Alphabet-level activities, hedging gains (losses) related to revenue were $102 million and $(112) million for the three months ended June 30, 2024 and 2025, respectively, and $174 million and $148 million for the six months ended June 30, 2024 and 2025, respectively. Alphabet-level activities include charges related to employee severance and office space charges. Google Services Google Services operating income increased $3.4 billion from the three months ended June 30, 2024 to the three months ended June 30, 2025. The increase in

(1)    Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas"). Revenue Backlog As of June 30, 2025, we had $108.2 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud. Revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenue. We expect to recognize approximately 55% of the revenue backlog as revenues over the next 24 months with the remainder to be recognized thereafter. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by our ability to deliver in accordance with relevant contract terms and when our customers utilize services. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods, and excludes contracts with an original expected term of one year or less and cancellable contracts. Deferred Revenues We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Deferred revenues primarily relate --- •Android: In July 2018, the EC announced its decision that certain provisions in Google’s Android-related distribution agreements infringed European antitrust laws, imposed a €4.3 billion fine, and directed the termination of the conduct at issue. We appealed the EC decision and implemented changes to certain of our Android distribution practices. In September 2022, the General Court affirmed the EC decision but reduced the fine from €4.3 billion to €4.1 billion. We subsequently appealed the General Court's affirmation of the EC decision with the European Court of Justice, which remains pending. In 2018, we recognized a charge of $5.1 billion for the fine, which we reduced by $217 million in 2022. •AdSense for Search: In March 2019, the EC announced its decision that certain provisions in Google's agreements with AdSense for Search partners infringed European antitrust laws, imposed a fine of €1.5 billion, and directed actions related to AdSense for Search partners' agreements, which we implemented prior to the decision. In 2019, we recognized a charge of $1.7 billion for the fine and appealed the EC decision. In September 2024, the General Court overturned the EC decision and annu --- Note 13. Compensation Plans Stock-Based Compensation For the three months ended June 30, 2024 and 2025, total stock-based compensation (SBC) expense was $5.9 billion and $6.0 billion, including amounts associated with awards we expect to settle in Alphabet stock of $5.7 billion and $5.8 billion, respectively. For the six months ended June 30, 2024 and 2025, total SBC expense was $11.2 billion and $11.5 billion, including amounts associated with awards we expect to settle in Alphabet stock of $10.7 billion and $11.1 billion, respectively. Stock-Based Award Activities The following table summarizes the activities for unvested Alphabet restricted stock units (RSUs), which include dividend equivalents awarded to holders of unvested stock, for the six months ended June 30, 2025 (in millions, except per share amounts): --- We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. The total amount of gross unrecognized tax benefits was $12.6 billion and $12.9 billion, of which $10.0 billion and $11.0 billion, if recognized, would affect our effective tax rate, as of December 31, 2024 and June 30, 2025, respectively. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. This legislation includes changes to U.S. federal tax law, which may be subject to further clarification and the issuance of interpretive guidance. We are assessing the legislation and its effect on our consolidated financial statements, whi

Oracle cloud license and on-premise license deployment offerings include Oracle Applications, Oracle Database and Oracle Middleware software offerings, among others, which customers deploy using IT infrastructure from the Oracle Cloud or their own IT environments. Substantially all customers opt to purchase license support contracts when they purchase an Oracle license. Oracle hardware products include Oracle Engineered Systems, servers, storage and industry-specific products, among others. Customers generally opt to purchase hardware support contracts when they purchase Oracle hardware products. Oracle also offers professional services to assist our customers and partners to maximize the performance of their investments in Oracle products and services. Our customers include businesses of many sizes, government agencies, educational institutions and resellers that we market and sell to directly through our worldwide sales force or indirectly through the Oracle Partner Network. Using Oracle technologies, our customers build, deploy, run, manage and support their internal and external products, services and business operations, including, for example, an artificial intelligence (AI --- Oracle Cloud Operations Oracle Cloud Operations deliver our Oracle Cloud Services to customers through a secure, reliable, scalable, enterprise grade cloud infrastructure platform managed by Oracle employees within a global network of data centers, which we refer to as the Oracle Cloud. The Oracle Cloud enables secure and isolated cloud-based instances for each of our customers to access the functionality of Oracle Cloud Services via a broad spectrum of devices. Oracle Cloud Operations leverage automated software tools to enable the rapid delivery of the latest cloud technology capabilities to the Oracle Cloud as they become available and provide Oracle customers access to the latest Oracle releases. We have invested in the rapid expansion of the Oracle Cloud by increasing existing data center capacity and adding data centers in new geographic locations to meet current and expected customer demand. We expect this trend will continue. Manufacturing We rely on third-party manufacturing partners to produce most of our hardware products that we market and sell to customers and utilize internally to deliver Oracle Cloud Services, and we distribute most of our hardware products from th --- Working capital: The increase in working capital as of May 31, 2025 in comparison to May 31, 2024 was primarily due to favorable impacts from net income and proceeds from the issuance of senior notes, net of issuance costs, of $13.9 billion (refer to Note 6 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information) during fiscal 2025. This increase was partially offset by $21.2 billion of cash used for capital expenditures; $4.9 billion of long-term borrowings that were reclassified to current liabilities; $4.7 billion of cash used to pay dividends to our stockholders; $600 million of cash used for repurchases of our common stock; $294 million of cash used for purchases, net of sales and maturities of non-current investments; and $247 million of net cash used for our employee stock programs during fiscal 2025. Our working capital may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable. Cash, cash equivalents and marketable securities: Cash and cash equivalents primarily consist of deposits held at major banks, money market funds and other securities with --- costs, of $13.9 billion and the issuance of commercial paper, net of repayments, of $1.9 billion during fiscal 2025 (refer to Note 6 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information); and $1.1 billion of cash inflows from other financing activities, net. This increase was partially offset by $21.2 billion of cash

Remaining Performance Obligations from Contracts with Customers Trade receivables, net of allowance for credit losses, and deferred revenues are reported net of related uncollected deferred revenues in our consolidated balance sheets as of May 31, 2025 and 2024. The revenues recognized during the year ended May 31, 2025 and 2024 that were included in the opening deferred revenues balances as of May 31, 2024 and 2023 were approximately $9.3 billion and $9.0 billion, respectively. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial during each year ended May 31, 2025, 2024 and 2023. Remaining performance obligations represent contracted revenues that had not yet been recognized, and include deferred revenues; invoices that have been issued to customers but were uncollected and have not been recognized as revenues; and amounts that will be invoiced and recognized as revenues in future periods. We have elected the optional exemption to not disclose the variable consideration for contracts in which the variable consideration expected to be received over the duration of the contract is allocated e --- Fiscal 2024 Oracle Restructuring Plan During fiscal 2024, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our acquisitions and certain other operational activities (2024 Restructuring Plan). In fiscal 2025, our management supplemented the 2024 Restructuring Plan to reflect additional actions that we expected to take. Restructuring costs associated with the 2024 Restructuring Plan were recorded to the restructuring expense line item within our consolidated statements of operations as they were incurred. We recorded $314 million and $432 million of restructuring expenses in connection with the 2024 Restructuring Plan in fiscal 2025 and 2024, respectively. Actions pursuant to the 2024 Restructuring Plan were substantially complete as of May 31, 2025. Fiscal 2022 Oracle Restructuring Plan During fiscal 2022, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our acquisitions and certain other operational activities (2022 Restructuring Plan). In fiscal 2023, our management supplemented the 2022 Restructuring Plan to reflect ad --- we expected to take. Restructuring costs associated with the 2022 Restructuring Plan were recorded to the restructuring expense line item within our consolidated statements of operations as they were incurred. We recorded $493 million of restructuring expenses in connection with the 2022 Restructuring Plan in fiscal 2023. The total costs recorded in our consolidated statements of operations in connection with the 2022 Restructuring Plan were $716 million. Actions pursuant to the 2022 Restructuring Plan were substantially complete as of May 31, 2023. Summary of All Plans Fiscal 2025 Activity --- At May 31, 2025, we had federal net operating loss carryforwards of approximately $270 million, which are subject to limitation on their utilization. Approximately $180 million of these federal net operating losses expire in various years between fiscal 2026 and fiscal 2038. Approximately $90 million of these federal net operating losses are not currently subject to expiration dates. We had state net operating loss carryforwards of approximately $2.1 billion at May 31, 2025, which are subject to limitations on their utilization. Approximately $2.0 billion of these state net operating losses expire in various years between fiscal 2026 and fiscal 2045. Approximately $98 million of these state net operating losses are not currently subject to expiration dates. We had total foreign net operating loss carryforwards of approximately $1.8 billion at May 31, 2025, which are subject to limitations on their utilization. Approximately $1.7 billion of these foreign net operating

Principles of Consolidation The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary, including certain entities in India and certain entities that support our healthcare services and production and distribution of video content. Intercompany balances and transactions between consolidated entities are eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, impairment of property and equipment and operating leases, valuation --- Note 3 — LEASES We have entered into non-cancellable operating and finance leases for fulfillment network, data center, office, and physical store facilities as well as server and networking equipment, aircraft, and vehicles. Gross assets acquired under finance leases, including those where title transfers at the end of the lease, are recorded in “Property and equipment, net” and were $56.5 billion and $54.7 billion as of December 31, 2024 and March 31, 2025. Accumulated amortization associated with finance leases was $41.8 billion and $40.6 billion as of December 31, 2024 and March 31, 2025. Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): --- ___________________ (1)Includes non-cancellable financing obligations for fulfillment network and data center facilities. Excluding interest, current financing obligations of $312 million and $275 million are recorded within “Accrued expenses and other” and $7.1 billion are recorded within “Other long-term liabilities” as of December 31, 2024 and March 31, 2025. The weighted-average remaining term of the financing obligations was 16.1 years and 15.8 years and the weighted-average imputed interest rate was 3.1% as of December 31, 2024 and March 31, 2025. (2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content, procure energy, acquire property and equipment, and license software that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified. Energy agreements based on actual generation --- ___________________ (1)Includes property and equipment added under finance leases of $7 million and $54 million in Q1 2024 and Q1 2025. (2)Includes property and equipment added under finance leases of $35 million and $0 million in Q1 2024 and Q1 2025. --- Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations a

Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in Q1 2025, compared to the comparable prior year period, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by fulfillment network efficiencies, including lower transportation costs. Changes in foreign exchange rates reduced cost of sales by $910 million for Q1 2025. Shipping costs were $21.8 billion and $22.5 billion in Q1 2024 and Q1 2025. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part through achie --- Guidance We provided guidance on May 1, 2025, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of May 1, 2025, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, tariff and trade policies, and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part II, “Risk Factors.” Second Quarter 2025 Guidance •Net sales are expected to be between $159.0 billion and $164.0 billion, or to grow between 7% and 11% compared with second quarter 2024. This guidance anticipates an unfavorable impact of approximately 10 basis points from foreign exchange rates. •Operating income is expected to be between $13.0 billion and $17.5 billion, compared with $14.7 billion in second quarter 2024. •This

In January 2025, we completed an assessment of the useful lives of property and equipment, which resulted in an increase in the estimated useful lives of most servers and network assets to 5.5 years, effective January 1, 2025. Based on the servers and network assets placed in service as of December 31, 2024, the financial impact of this change in estimate included a reduction in depreciation expense of $826 million and an increase in net income of $695 million, or $0.27 per diluted share, for the three months ended March 31, 2025. --- Construction in progress includes costs mostly related to construction of data centers, network infrastructure and servers. Depreciation expense on property and equipment was $3.84 billion and $3.33 billion for the three months ended March 31, 2025 and 2024, respectively. Within property and equipment, our servers and network assets depreciation expenses were $2.63 billion and $2.35 billion for the three months ended March 31, 2025 and 2024, respectively. We extended the estimated useful lives of most servers and network assets to 5.5 years, effective January 1, 2025. See Note 1 — Summary of Significant Accounting Policies - Use of Estimates. 17 --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of March 31, 2025. These lease obligations were approximately $35.27 billion, mostly for data centers, certain network infrastructure, and colocations, which will commence between the remainder of 2025 and 2034. --- We also have $30.05 billion of non-cancelable contractual commitments as of March 31, 2025, which are primarily related to our investments in servers and network infrastructure, and content costs, with $23.41 billion due in 2025. --- •Net income was $16.64 billion, with diluted earnings per share (EPS) of $6.43 for the three months ended March 31, 2025. •Capital expenditures, including principal payments on finance leases, were $13.69 billion for the three months ended March 31, 2025. •Share repurchases of our Class A common stock were $13.40 billion and total dividend and dividend equivalent payments were $1.33 billion for the three months ended March 31, 2025. •Cash, cash equivalents, and marketable securities were $70.23 billion as of March 31, 2025. •Effective tax rate was 9% for the three months ended March 31, 2025. •Headcount was 76,834 as of March 31, 2025, an increase of 11% year-over-year. --- We remain focused on operating efficiently while investing in significant opportunities. In the three months ended March 31, 2025, 81% of our total costs and expenses were recognized in FoA and 19% were recognized in RL. Our FoA investments include expenses relating to headcount, data centers, and technical infrastructure as part of our efforts to develop our apps and our advertising services. These efforts include significant investments in AI initiatives, including to recommend relevant content across our products, enhance our advertising tools, develop new products, and develop new features for existing products using generative AI. In particular, we expect our AI initiatives will require increased investment in infrastructure and headcount. --- Cost of revenue in the three months ended March 31, 2025 increased $932 million, or 14%, compared to the same period in 2024. The increase was mainly due to higher operational expenses related to our data centers and technical infrastructure, which included a decrease in the depreciation growth rate due to an extension in the useful lives of servers and network assets, effective January 1, 2025. To a lesser extent, higher costs associated with partner arrangements also contributed to the increase in the three months ended March 31, 2025. --- Our principal sources of liquidity are our cash, cash equivalents, marketable securities, and cash generated from operations. Cash, cash equivalents, and marketable securities are comprised of cash on

Total deferred revenue was $778 million and $772 million as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, we expect most of the deferred revenue to be realized in less than a year. 13 --- In addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of March 31, 2025. These lease obligations were approximately $35.27 billion, mostly for data centers, certain network infrastructure, and colocations, which will commence between the remainder of 2025 and 2034. --- Our gross unrecognized tax benefits were $16.01 billion and $15.13 billion as of March 31, 2025 and December 31, 2024, respectively. These unrecognized tax benefits were primarily accrued for the uncertainties with our research tax credits and transfer pricing with our foreign subsidiaries, which include licensing of intellectual property, providing services and other transactions. If the gross unrecognized tax benefits as of March 31, 2025 were realized in a future period, this would result in a tax benefit of $10.79 billion within our provision for income taxes at such time. The amount of interest and penalties accrued was $2.47 billion and $2.21 billion as of March 31, 2025 and December 31, 2024, respectively. We expect to continue to accrue unrecognized tax benefits for certain recurring tax positions. --- In July 2016, we received a Statutory Notice of Deficiency (Notice) from the Internal Revenue Service (IRS) related to transfer pricing with our foreign subsidiaries in conjunction with the examination of the 2010 tax year. While the Notice applies only to the 2010 tax year, the IRS stated that it will also apply its position for tax years subsequent to 2010 and has done so in years covered by the second Notice described below. We do not agree with the position of the IRS and have filed a petition in the Tax Court challenging the Notice. On January 15, 2020, the IRS's amendment to answer was filed stating that it planned to assert at trial an adjustment that is higher than the adjustment stated in the Notice. The first session of the trial was completed in March 2020 and the final trial session was completed in August 2022. We expect the Tax Court to issue an opinion in 2025 which will likely provide a transfer pricing value for intellectual property transferred. This value will need to be extrapolated into income adjustments to determine the specific tax liability, which will likely remain in dispute and will not be resolved until the Tax Court enters a decision. If the IRS prevai --- We are also making significant investments in our metaverse and wearables efforts, including developing virtual, augmented, and mixed reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our RL investments include expenses relating to technology development across these efforts. Many of our RL investments are directed toward long-term, cutting-edge research and development for products that may only be fully realized in the next decade. During the three months ended March 31, 2025, our RL segment reduced our overall operating profit by approximately $4.21 billion, and we continue to expect our full-year RL operating losses to increase in 2025. We expect this will be a complex, evolving, and long-term initiative, and our ability to support our RL efforts is dependent on generating sufficient profits from other areas of our business. We are investing now because we believe this will become the next computing platform and will unlock monetization opportunities for businesses, developers, and creators, including around advertising, hardware, and digital goods. 30 --- Advertising revenue in the three months ended March 31, 2025 increased $5.76 billion, or 16%, compared to the same period in 2024, due to increases in ad impressions delivered and average price per ad. During the three months ended March 31, 2025, ad i

Contract Balances and Other Receivables As of both March 31, 2025 and June 30, 2024, long-term accounts receivable, net of allowance for doubtful accounts, was $4.9 billion and is included in other long-term assets in our consolidated balance sheets. As of March 31, 2025 and June 30, 2024, other receivables related to activities to facilitate the purchase of server components were $10.8 billion and $10.5 billion, respectively, and are included in other current assets in our consolidated balance sheets. We record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of March 31, 2025 and June 30, 2024, our financing receivables, net were $2.6 billion and $4.5 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently available evidence. --- Our Microsoft Cloud revenue, which includes Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365, was $42.4 billion and $122.2 billion for the three and nine months ended March 31, 2025, respectively, and $35.2 billion and $100.8 billion for the three and nine months ended March 31, 2024, respectively. These amounts are included in Microsoft 365 Commercial products and cloud services, Server products and cloud services, LinkedIn, and Dynamics products and cloud services in the table above. --- In August 2024, we announced changes to the composition of our segments. These changes align our segments with how we currently manage our business, most notably bringing the commercial components of Microsoft 365 together in the Productivity and Business Processes segment. Beginning in fiscal year 2025, the information that our chief operating decision maker is regularly provided and reviews for purposes of allocating resources and assessing performance reflects these segment changes. Prior period segment information has been recast to conform to the way we internally manage and monitor our business during fiscal year 2025. Additional information on our reportable segments is contained in Note 17 – Segment Information and Geographic Data of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q). Metrics We use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics ar --- Operating income increased $2.2 billion or 15%. •Gross margin increased $2.3 billion or 10% driven by growth in Microsoft 365 Commercial cloud. Gross margin percentage was relatively unchanged inclusive of the impact of scaling our AI infrastructure. --- Revenue, gross margin, and operating income each included an unfavorable foreign currency impact of 3%. Intelligent Cloud Revenue increased $4.6 billion or 21%. •Server products and cloud services revenue increased $4.5 billion or 22% driven by Azure and other cloud services. Azure and other cloud services revenue grew 33% driven by demand for our portfolio of services, including 16 points from our AI services. Server products revenue decreased 6% primarily driven by a decrease in transactional purchasing with continued customer shift to cloud offerings. --- Operating income increased $1.6 billion or 17%. •Gross margin increased $1.9 billion or 13% driven by growth in Azure. Gross margin percentage decreased driven by the impact of scaling our AI infrastructure. --- Operating income increased $6.8 billion or 16%. •Gross margin in

Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incu --- Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $321 billion as of March 31, 2025, of which $315 billion is related to the commercial portion of revenue. We expect to recognize approximately 40% of our total company remaining performance obligation revenue over the next 12 months and the remainder thereafter. --- As of March 31, 2025, we had additional operating and finance leases, primarily for datacenters, that had not yet commenced of $4.4 billion and $94.8 billion, respectively. These operating and finance leases will commence between fiscal year 2025 and fiscal year 2030 with lease terms of 1 year to 20 years. --- If our customers choose to license cloud-based versions of our products and services rather than licensing transaction-based products and services, the associated revenue will shift from being recognized at the time of the transaction to being recognized over the subscription period or upon consumption, as applicable. Refer to Note 12 – Unearned Revenue of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion. Material Cash Requirements and Other Obligations Income Taxes As a result of the TCJA, we are required to pay a one-time transition tax on deferred foreign income not previously subject to U.S. income tax. Under the TCJA, the transition tax is payable in interest-free installments over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. As of March 31, 2025, our eighth transition tax installment of $4.4 billion is short-term and payable in the first quarter of fiscal year 2026. Share Repurchases For the nine months ended March 31, 2025 and 2024, we repurchased 23 million shares and 25 million shares of our common stock for $9.8 billion and $9.2 billion, respectively, through --- We returned $9.7 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2025. Refer to Note 15 – Stockholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion regarding share repurchases and dividends.

As of March 31, 2025, we have entered into leases primarily related to data centers that have not yet commenced with future lease payments of $17.3 billion, that are not yet recorded on our Consolidated Balance Sheets. These leases will commence between 2025 and 2031 with non-cancelable lease terms between one and 25 years. 20 --- Note 7. Supplemental Financial Statement Information Accounts Receivable The allowance for credit losses on accounts receivable was $879 million and $915 million as of December 31, 2024 and March 31, 2025, respectively. Property and Equipment, Net Property and equipment, net, consisted of the following (in millions): As of December 31, 2024As of March 31, 2025 Technical infrastructure(1) $139,596 $150,992  Office space43,714 44,871  Corporate and other assets16,519 17,336  Property and equipment, in service199,829 213,199  Less: accumulated depreciation(79,390)(83,778) Add: assets not yet in service50,597 55,641  Property and equipment, net$171,036 $185,062 --- (1)    Additional property and equipment purchases of $3.2 billion and $3.8 billion as of December 31, 2024 and March 31, 2025, respectively, were included in accounts payable. (2)    The amounts related to the European Commission (EC) fines, including any under appeal, are included in accrued expenses and other current liabilities on our Consolidated Balance Sheets. Amounts include the effects of foreign exchange and interest. See Note 10 for further details. Accumulated Other Comprehensive Income (Loss) Components of AOCI, net of income tax, were as follows (in millions): Foreign Currency Translation AdjustmentsUnrealized Gains (Losses) on Available-for-Sale InvestmentsUnrealized Gains (Losses) on Cash Flow HedgesTotal Balance as of December 31, 2023$(3,407)$(965)$(30)$(4,402) Other comprehensive income (loss) before reclassifications(503)(360)128 (735) Amounts excluded from the assessment of hedge effectiveness recorded in AOCI0 0 58 58  Amounts reclassified from AOCI0 311 (71)240  Other comprehensive income (loss)(503)(49)115 (437) Balance as of March 31, 2024$(3,910)$(1,014)$85 $(4,839) --- •Operating expenses were $23.3 billion, an increase of 9% year over year, primarily driven by increases in depreciation expense, employee compensation expenses, and other technical infrastructure operations costs. Other Information: •In March 2025, we entered into a definitive agreement to acquire Wiz, a leading cloud security platform, for $32.0 billion, subject to closing adjustments, in an all-cash transaction. The acquisition of Wiz is expected to close in 2026, subject to customary closing conditions, including the receipt of regulatory approvals. Upon the close of the acquisition, Wiz will be part of the Google Cloud segment. •In April 2025, the Board of Directors of Alphabet declared a quarterly cash dividend of $0.21 representing a 5% increase from the previous quarterly dividend of $0.20. The dividend is payable on June 16, 2025 to stockholders of record for each of the company’s Class A, Class B, and Class C shares as of June 9, 2025. For additional information, see Note 11 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q •Repurchases of Class A and Class C shares were $2.8 billion and $12.5 billion, respectively, --- Cost of revenues increased $2.6 billion from the three months ended March 31, 2024 to the three months ended March 31, 2025 due to an increase in other cost of revenues and TAC of $1.8 billion and $802 million, respectively. The increase in TAC from the three months ended March 31, 2024 to the three months ended March 31, 2025 was largely due to an increase in TAC paid to distribution partners, primarily driven by growth in revenues subject to TAC. The TAC rate decreased from 21.0% to 20.6% from the three months ended March 31, 2024 to the three months ended March 31, 2025 primarily due to a revenue mix shift from Google Network properties to Google Search

(1)    Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas"). Revenue Backlog As of March 31, 2025, we had $92.4 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud. Revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenue. We expect to recognize approximately 55% of the revenue backlog as revenues over the next 24 months with the remainder to be recognized thereafter. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by our ability to deliver in accordance with relevant contract terms and when our customers utilize services. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods, and excludes contracts with an original expected term of one year or less and cancellable contracts. Deferred Revenues We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Deferred revenues primarily relate --- prior to the decision. In 2019, we recognized a charge of $1.7 billion for the fine and appealed the EC decision. In September 2024, the General Court overturned the EC decision and annulled the €1.5 billion fine. The EC has appealed the General Court's decision with the European Court of Justice. •Search: In October 2020, the DOJ and a number of state Attorneys General filed a lawsuit in the U.S. District Court for the District of Columbia alleging that Google violated U.S. antitrust laws relating to Search and Search advertising. In August 2024, the U.S. District Court for the District of Columbia ruled that Google violated such U.S. antitrust laws. A separate proceeding is being held to determine remedies, the range of which vary widely. The DOJ has proposed a high level remedy framework, which includes alterations to our products and services and our business models and operations, including structural remedies, and/or our distribution arrangements, among other changes, some of which could have a material adverse effect on our business. We have filed our own remedies proposal ahead of a hearing on remedies in April 2025. We expect a decision likely in the second half of 2025, a --- Note 13. Compensation Plans Stock-Based Compensation For the three months ended March 31, 2024 and 2025, total stock-based compensation (SBC) expense was $5.3 billion and $5.5 billion, including amounts associated with awards we expect to settle in Alphabet stock of $5.1 billion and $5.3 billion, respectively. Stock-Based Award Activities The following table summarizes the activities for unvested Alphabet restricted stock units (RSUs), which include dividend equivalents awarded to holders of unvested stock, for the three months ended March 31, 2025 (in millions, except per share amounts):

Use of Estimates Our condensed consolidated financial statements are prepared in accordance with GAAP as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC), and we consider various staff accounting bulletins and other applicable guidance issued by the SEC. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent that there are differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which manage --- consolidated balance sheets, were $11.7 billion and $7.3 billion as of February 28, 2025 and May 31, 2024, respectively, and ROU assets related to our finance leases, which are included in property, plant and equipment, net in our condensed consolidated balance sheets, were $894 million as of February 28, 2025 (and none as of May 31, 2024). Lease liabilities are included in other current liabilities and other non-current liabilities in our condensed consolidated balance sheets. Total operating lease liabilities were $12.0 billion and $7.5 billion as of February 28, 2025 and May 31, 2024, respectively, and total finance lease liabilities were $900 million as of February 28, 2025 (and none as of May 31, 2024). Total operating and finance lease expenses were $454 million and $324 million for the three months ended February 28, 2025 and February 29, 2024, respectively, and $1.2 billion and $840 million for the nine months ended February 28, 2025 and February 29, 2024, respectively. Operating lease payments and interest payments on finance leases were $1.2 billion and $839 million for the nine months ended February 28, 2025 and February 29, 2024, respectively. As of February 28, 2025, w --- From time to time since 2017, we have made investments in Ampere Computing Holdings LLC (Ampere), a related party entity, in the form of equity and convertible debt instruments. The total carrying value of our investments in Ampere, after accounting for losses under the equity method of accounting, was $1.5 billion as of February 28, 2025. We currently expect Ampere to continue to generate net losses in future periods, but we remain confident in the long-term potential of Ampere’s server chips. --- Total cloud and license business’ expenses increased by $461 million and $1.4 billion in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods. Excluding the favorable effects of currency rate fluctuations of 2% in the third quarter of fiscal 2025 and less than 1% in the first nine months of fiscal 2025, the constant currency increase in expenses was primarily due to a $399 million and a $961 million increase in infrastructure expenses, an $81 million and a $265 million increase in employee related expenses for employees engaged in cloud services delivery and a $96 million and a $187 million increase in sales and marketing expenses, in each case in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods, to support the increase in our cloud services revenues. Our cloud services and license support expenses have grown in recent periods, and we expect this trend to continue during fiscal 2025 as we increase our

Use of Estimates Our condensed consolidated financial statements are prepared in accordance with GAAP as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC), and we consider various staff accounting bulletins and other applicable guidance issued by the SEC. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent that there are differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which manage --- Remaining Performance Obligations from Contracts with Customers Trade receivables, net of allowance for credit losses, and deferred revenues are reported net of related uncollected deferred revenues in our condensed consolidated balance sheets as of February 28, 2025 and May 31, 2024. The revenues recognized during the nine months ended February 28, 2025 and February 29, 2024 that were included in the opening deferred revenues balances as of May 31, 2024 and 2023 were approximately $8.6 billion and $8.5 billion, respectively. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial in each of the three and nine months ended February 28, 2025 and February 29, 2024, respectively. Remaining performance obligations, as defined in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024, were $130.2 billion as of February 28, 2025, of which we expect to recognize approximately 31% as revenues over the next twelve months, 40% over the subsequent month 13 to month 36, 25% over the subsequent month 37 to month 60 and the remain --- Our cash equivalents and marketable securities investments consist of money market funds, time deposits and marketable equity securities. Marketable securities as presented per our condensed consolidated balance sheets included debt securities with original maturities at the time of purchase greater than three months and the remainder of the debt securities were included in cash and cash equivalents. We classify our marketable debt securities as available-for-sale debt securities at the time of purchase and reevaluate such classification as of each balance sheet date. As of February 28, 2025 and May 31, 2024, all of our marketable debt securities investments mature within one year. Our valuation techniques used to measure the fair values of our instruments that were classified as Level 1 in the table above were derived from quoted market prices and active markets for these instruments that exist. Our valuation techniques used to measure the fair values of Level 2 instruments listed in the table above were derived from the following: non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, --- Fiscal 2024 Oracle Restructuring Plan During fiscal 2024, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our acquisitions and certain other operational activities (2024 Restructuring Plan). In the first nine months of fiscal 2025, our management supplemented the 2024 Restructuring Plan to refle

Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $86.8 billion and $101.2 billion as of December 31, 2023 and 2024. Amounts held in foreign currencies were $23.5 billion and $25.5 billion as of December 31, 2023 and 2024. Our foreign currency balances include British Pounds, Canadian Dollars, Euros, Indian Rupees, and Japanese Yen. Cash provided by (used in) operating activities was $84.9 billion and $115.9 billion in 2023 and 2024. Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments. Cash received from our customers and other activities generally corresponds to our net sales. The increase in operating cash flow in 2024, compared to the prior year, was due to an increase in net income (loss), excluding non-cash expenses, and changes in working capital. Working capital at any specific poi --- Operating income was $36.9 billion and $68.6 billion for 2023 and 2024. We believe that operating income is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services. For more information on the operating expenses that impact segment operating income, see “Operating Expenses” and the descriptions of operating expense line item changes on pages 25 to 27, and “Note 10 — Segment Information” on page 65. The increase in North America operating income in 2024, compared to the prior year, is primarily due to increased unit sales and increased advertising sales, partially offset by increased fulfillment and shipping costs. The International operating income in 2024, as compared to the operating loss in the prior year, is primarily due to increased unit sales and increased advertising sales, partially offset by increased shipping and fulfillment costs. Changes in foreign exchange rates did not significantly impact operating income in 2024. The increase in AWS operating income in 2024, compared to the prior year, is primarily due to increased sales, decreased payroll and related expenses, and a reduction in depreciation and amo --- ___________________ (1)For the year ended December 31, 2023 and 2024, this amount relates to equipment included in “Property and equipment acquired under finance leases, net of remeasurements and modifications” of $642 million and $854 million. (2)For the year ended December 31, 2023 and 2024, this amount relates to property included in “Principal repayments of finance leases” of $4,384 million and $2,043 million. All of these free cash flows measures have limitations as they omit certain components of the overall cash flow statement and do not represent the residual cash flow available for discretionary expenditures. For example, these measures of free cash flows do not incorporate the portion of payments representing principal reductions of debt or cash payments for business acquisitions. Additionally, our mix of property and equipment acquisitions with cash or other financing options may change over time. Therefore, we believe it is important to view free cash flows measures only as a complement to our entire consolidated statements of cash flows. --- Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeitu

Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in 2024, compared to the prior year, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by fulfillment network efficiencies, including lower transportation costs. Changes in foreign exchange rates reduced cost of sales by $1.7 billion in 2024. Shipping costs were $89.5 billion and $95.8 billion in 2023 and 2024. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, opti --- Guidance We provided guidance on February 6, 2025, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of February 6, 2025, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part I, “Risk Factors.” First Quarter 2025 Guidance •Net sales are expected to be between $151.0 billion and $155.5 billion, or to grow between 5% and 9% compared with first quarter 2024. This guidance anticipates an unusually large, unfavorable impact of approximately $2.1 billion, or 150 basis points, from foreign exchange rates. Also, as a reminder, in first quarter 2024 the impact from Leap Year added approximately $1.5 billion in net sales. •Oper --- Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, impairment of property and equipment and operating leases, valuation and impairment of investments, self-insurance liabilities, and viewing patterns of capitalized video content. Actual results could differ materially from these estimates. We review the useful lives of equipment on an ongoing basis. In Q4 2024, we completed a useful life study for certain types of heavy equipment and are increasing the useful life from ten years to thirteen years for such equipment effective January 1, 2025. Based on heavy equipment included in “Property and equipment, net” as of December 31, 2024, we estimate an increa

(1)    See "Use of Non-GAAP Constant Currency Information" below for details relating to our use of constant currency information. (2)    For additional information on the calculation of diluted EPS, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. •Revenues were $350.0 billion, an increase of 14% year over year, primarily driven by an increase in Google Services revenues of $32.4 billion, or 12%, and an increase in Google Cloud revenues of $10.1 billion, or 31%. •Total constant currency revenues, which exclude the effect of hedging, increased 15% year over year. •Cost of revenues was $146.3 billion, an increase of 10% year over year, primarily driven by increases in content acquisition costs, TAC, and depreciation expense. •Operating expenses were $91.3 billion, an increase of 2% year over year, primarily driven by increases in depreciation expense, employee compensation expenses, and third-party services fees. These increases were partially offset by reductions in charges related to legal and other matters and charges related to our office space optimization efforts. The overall increase in employee compensatio --- Cost of revenues increased $13.0 billion from 2023 to 2024 due to an increase in other cost of revenues and TAC of $9.0 billion and $4.0 billion, respectively. The increase in TAC from 2023 to 2024 was largely due to an increase in TAC paid to distribution partners, primarily driven by growth in revenues subject to TAC. The TAC rate decreased from 21.4% to 20.7% from 2023 to 2024 primarily due to a revenue mix shift from Google Network properties to Google Search & other properties. The TAC rate on Google Search & other revenues increased from 2023 to 2024 primarily due to increases related to mobile searches, which carries higher TAC because more mobile searches are channeled through paid access points. The TAC rate on Google Network revenues was substantially consistent from 2023 to 2024. The increase in other cost of revenues from 2023 to 2024 was primarily due to increases in content acquisition costs, largely for YouTube, depreciation expense, and other technical infrastructure operations costs. --- Google Services Google Services operating income increased $25.4 billion from 2023 to 2024. The increase in operating income was primarily driven by an increase in revenues, partially offset by increases in content acquisition costs and TAC. Additionally, a reduction in employee compensation expenses contributed to the increase in operating income. Google Cloud Google Cloud operating income increased $4.4 billion from 2023 to 2024. The increase in operating income was primarily driven by an increase in revenues, partially offset by increases in usage costs for technical infrastructure as well as employee compensation expenses, largely driven by headcount growth. Other Bets Other Bets operating loss increased $349 million from 2023 to 2024. The increase in operating loss was primarily due to an increase in expenses, largely driven by employee compensation expenses in addition to a combination of factors, none of which were individually significant. The increase in employee compensation expenses was primarily as a result of the reduction in valuation-based compensation liabilities related to certain Other Bets recognized in the prior year comparable period. --- Purchase Commitments and Other Contractual Obligations As of December 31, 2024, we had material purchase commitments and other contractual obligations of $55.4 billion, of which $32.5 billion was short-term. These amounts primarily consist of purchase orders for certain technical infrastructure as well as the non-cancelable portion or the minimum cancellation fee in certain agreements related to commitments to purchase licenses, including content licenses, inventory, and network capacity. For those agreements 43. --- Note 7. Supplemental Financial Statement Information Acc

(1)    Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas"). Revenue Backlog As of December 31, 2024, we had $93.2 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud. Revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenue. We expect to recognize approximately half of the revenue backlog as revenues over the next 24 months with the remainder to be recognized thereafter. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by our ability to deliver in accordance with relevant contract terms and when our customers utilize services. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods, and excludes contracts with an original expected term of one year or less and cancellable contracts. Deferred Revenues We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Deferred revenues primarily re --- compliance with the EC's decision. In September 2024, the European Court of Justice rejected our appeal and upheld the €2.4 billion fine. In the third quarter of 2024, we made a cash payment of $3.0 billion for the fine. •Android: In July 2018, the EC announced its decision that certain provisions in Google’s Android-related distribution agreements infringed European antitrust laws, imposed a €4.3 billion fine, and directed the termination of the conduct at issue. We appealed the EC decision and implemented changes to certain of our Android distribution practices. In September 2022, the General Court affirmed the EC decision but reduced the fine from €4.3 billion to €4.1 billion. We subsequently appealed the General Court's affirmation of the EC decision with the European Court of Justice, which remains pending. In 2018, we recognized a charge of $5.1 billion for the fine, which we reduced by $217 million in 2022. •AdSense for Search: In March 2019, the EC announced its decision that certain provisions in Google's agreements with AdSense for Search partners infringed European antitrust laws, imposed a fine of €1.5 billion, and directed actions related to AdSense for Search partner --- Note 13. Compensation Plans Stock Plans Our stock plans include the Alphabet Amended and Restated 2021 Stock Plan ("Alphabet 2021 Stock Plan") and Other Bets stock-based plans. Under our stock plans, RSUs and other types of awards may be granted. Under the Alphabet 2021 Stock Plan, an RSU award is an agreement to issue shares of our Class C stock at the time the award vests. RSUs generally vest over four years contingent upon employment on the vesting date. RSUs are awarded dividend equivalents, which are subject to the same vesting conditions as the underlying award, and settled in Class C shares. As of December 31, 2024, there were 633 million shares of Class C stock reserved for future issuance under the Alphabet 2021 Stock Plan. Stock-Based Compensation For the years ended December 31, 2022, 2023, and 2024, total SBC expense was $19.5 billion, $22.1 billion, and $22.8 billion, including amounts associated with awards we expect to settle in Alphabet stock of $18.8 billion, $21.7 billion, and $22.0 billion, respectively. For the years ended December 31, 2022, 2023, and 2024, we recognized tax benefits on total SBC expense, which are reflected in the provision for income t

The majority of our investments are directed toward developing our family of apps. In 2024, 79% of our total costs and expenses were recognized in FoA and 21% were recognized in RL. Our FoA investments were $75.25 billion in 2024 and include expenses relating to headcount, data centers and technical infrastructure as part of our efforts to develop our apps and our advertising services. We are also making significant investments in our metaverse and wearables efforts. This includes developing virtual, mixed, and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our total RL investments were $19.88 billion in 2024 and include expenses relating to headcount and technology development across these efforts. These are fundamentally new technologies that we expect will evolve as the next computing platform develops, and many products may only be fully realized in the next decade. Although it is inherently difficult to predict when and how the next computing platform will develop, we expect our RL segment to continue to operate at a loss for the foreseeable future, and our ability to support our efforts to build the next compu --- We incur significant expenses in operating our business, and we expect our expenses to continue to increase in the future as we broaden our user base, as users increase the amount and types of content they consume and the data they share with us, for example with respect to video, as we develop and implement new products, as we market new and existing products and promote our brands, as we continue to expand our technical infrastructure, as we continue to invest in new and unproven technologies, including AI and machine learning, and as we continue our efforts to focus on privacy, safety, security, and content and advertising review and enforcement. We have previously undertaken cost reduction measures in light of a more challenging operating environment, which may adversely affect these or other business initiatives, and some of these measures have involved, and may in the future involve, up-front charges and outlays of cash to reduce certain longer- 27 --- term expenses. In addition, from time to time we are subject to settlements, judgments, fines, or other monetary penalties in connection with legal and regulatory developments that may be material to our business. We are also continuing to increase our investments in new platforms and technologies, including as part of our metaverse and wearables efforts. Some of these investments, particularly our significant investments in Reality Labs, have generated only limited revenue and reduced our operating margin and profitability, and we expect the adverse financial impact of such investments to continue for the foreseeable future. For example, our investments in Reality Labs reduced our 2024 overall operating profit by approximately $17.73 billion, and we expect our Reality Labs investments and operating losses to increase in 2025. If our investments are not successful longer-term, our business and financial performance will be harmed. Our business is dependent on our ability to maintain and scale our technical infrastructure, and any significant disruption in our products and services could damage our reputation, result in a potential loss of users and engagement, and adversely affect --- We have designed and built our own data centers and key portions of our technical infrastructure through which we serve our products, and we plan to continue to significantly expand the size of our infrastructure primarily through data centers, subsea and terrestrial fiber optic cable systems, and other projects. The infrastructure expansion we are undertaking is complex and involves projects in multiple locations around the world, including in developing regions that expose us to increased risks relating to anti-corruption compliance, trade compliance, and political challenges, among others. We have 28

The majority of our investments are directed toward developing our family of apps. In 2024, 79% of our total costs and expenses were recognized in FoA and 21% were recognized in RL. Our FoA investments were $75.25 billion in 2024 and include expenses relating to headcount, data centers and technical infrastructure as part of our efforts to develop our apps and our advertising services. We are also making significant investments in our metaverse and wearables efforts. This includes developing virtual, mixed, and augmented reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our total RL investments were $19.88 billion in 2024 and include expenses relating to headcount and technology development across these efforts. These are fundamentally new technologies that we expect will evolve as the next computing platform develops, and many products may only be fully realized in the next decade. Although it is inherently difficult to predict when and how the next computing platform will develop, we expect our RL segment to continue to operate at a loss for the foreseeable future, and our ability to support our efforts to build the next compu --- term expenses. In addition, from time to time we are subject to settlements, judgments, fines, or other monetary penalties in connection with legal and regulatory developments that may be material to our business. We are also continuing to increase our investments in new platforms and technologies, including as part of our metaverse and wearables efforts. Some of these investments, particularly our significant investments in Reality Labs, have generated only limited revenue and reduced our operating margin and profitability, and we expect the adverse financial impact of such investments to continue for the foreseeable future. For example, our investments in Reality Labs reduced our 2024 overall operating profit by approximately $17.73 billion, and we expect our Reality Labs investments and operating losses to increase in 2025. If our investments are not successful longer-term, our business and financial performance will be harmed. Our business is dependent on our ability to maintain and scale our technical infrastructure, and any significant disruption in our products and services could damage our reputation, result in a potential loss of users and engagement, and adversely affect --- We are also making significant investments in our metaverse and wearables efforts, including developing virtual, augmented, and mixed reality devices, software for social platforms, neural interfaces, and other foundational technologies. Our RL investments include expenses relating to technology development across these efforts. Many of our RL investments are directed toward long-term, cutting-edge research and development for products that may only be fully realized in the next decade. In 2024, our RL segment reduced our overall operating profit by approximately $17.73 billion, and we continue to expect our RL operating losses to increase in 2025. We expect this will be a complex, evolving, and long-term initiative, and our ability to support our RL efforts is dependent on generating sufficient profits from other areas of our business. We are investing now because we believe this is the next chapter of the internet and will unlock monetization opportunities for businesses, developers, and creators, including around advertising, hardware, and digital goods. 62 --- In January 2025, we completed an assessment of the useful lives of certain servers and network assets, which resulted in an increase in their estimated useful life to 5.5 years, effective beginning fiscal year 2025. Based on the servers and network assets placed in service as of December 31, 2024, we expect this change in accounting estimate will reduce our full-year 2025 depreciation expense by approximately $2.9 billion. For information regarding the change in useful lives of our servers and net

The security of our products and services is important in our customers’ decisions to purchase or use our products or services across cloud and on-premises environments. Security threats are a significant challenge to companies like us, whose business is providing technology products and services to others. Threats to or attacks on our own IT infrastructure, such as the nation-state attack described in the prior risk factor, have also affected our customers and may do so in the future. Customers using our cloud-based services rely on the security of our infrastructure, including hardware and other elements provided by third parties, to ensure the reliability of our services and the protection of their data. Adversaries tend to focus their efforts on the most popular operating systems, programs, and services, including many of ours, and we expect that to continue. In addition, adversaries can attack our customers’ on-premises or cloud environments, sometimes exploiting previously unknown (“zero-day”) vulnerabilities, such as the attack in early calendar year 2021 with several of our Exchange Server on-premises products. Vulnerabilities in these or any product can persist even after --- Cyberattacks may adversely impact our customers even if our production services are not directly compromised. We are committed to notifying our customers whose systems have been impacted as we become aware and have actionable information for customers to help protect themselves. We are also committed to providing guidance and support on detection, tracking, and remediation. We may not be able to detect the existence or extent of these attacks for all of our customers or have information on how to detect or track an attack, especially where an attack involves on-premises software such as Exchange Server where we may have no or limited visibility into our customers’ computing environments. --- In July 2022, we completed an assessment of the useful lives of our server and network equipment. Due to investments in software that increased efficiencies in how we operate our server and network equipment, as well as advances in technology, we determined we should increase the estimated useful lives of both server and network equipment from four years to six years. This change in accounting estimate was effective beginning fiscal year 2023. --- •Server products and cloud services revenue increased $17.8 billion or 22% driven by Azure and other cloud services. Azure and other cloud services revenue grew 30% driven by growth in our consumption-based services. Server products revenue increased 3% driven by continued demand for our hybrid solutions, including Windows Server and SQL Server running in multi-cloud environments. --- •Gross margin increased $11.6 billion or 19% driven by growth in Azure. Gross margin percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage increased slightly primarily driven by improvement in Azure, inclusive of scaling our AI infrastructure, offset in part by sales mix shift to Azure. --- We expect existing cash, cash equivalents, short-term investments, cash flows from operations, and access to capital markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as dividends, share repurchases, debt maturities, material capital expenditures, and the transition tax related to the Tax Cuts and Jobs Act (“TCJA”), for at least the next 12 months and thereafter for the foreseeable future. --- Cash from operations increased $31.0 billion to $118.5 billion for fiscal year 2024, primarily due to an increase in cash received from customers. Cash used in financing decreased $6.2 billion to $37.8 billion for fiscal year 2024, primarily due to a $5.0 billion decrease in common stock repurchases and a $3.3 billion increase in proceeds from issuance of debt, net of repayments, offset in part by a $2.0

We returned $8.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2024. Refer to Note 16 – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding share repurchases and dividends. --- Adjusted gross margin, operating income, net income, and diluted earnings per share (“EPS”) are non-GAAP financial measures. Prior year non-GAAP financial measures exclude the impact of a $1.2 billion charge in the second quarter of fiscal year 2023 (“Q2 charge”), which included employee severance expenses, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results. --- The mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2024, our U.S. income before income taxes was $62.9 billion and our foreign income before income taxes was $44.9 billion. In fiscal year 2023, our U.S. income before income taxes was $52.9 billion and our foreign income before income taxes was $36.4 billion. --- Cash from operations increased $31.0 billion to $118.5 billion for fiscal year 2024, primarily due to an increase in cash received from customers. Cash used in financing decreased $6.2 billion to $37.8 billion for fiscal year 2024, primarily due to a $5.0 billion decrease in common stock repurchases and a $3.3 billion increase in proceeds from issuance of debt, net of repayments, offset in part by a $2.0 billion increase in dividends paid. Cash used in investing increased $74.3 billion to $97.0 billion for fiscal year 2024, primarily due to a $67.5 billion increase in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets and a $16.4 billion increase in additions to property and equipment. --- As a result of the TCJA, we are required to pay a one-time transition tax on deferred foreign income not previously subject to U.S. income tax. Under the TCJA, the transition tax is payable in interest-free installments over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. As of June 30, 2024, we had a remaining transition tax liability of $7.6 billion, of which $3.8 billion is short-term and payable in the first quarter of fiscal year 2025. --- As of June 30, 2024 and 2023, other receivables related to activities to facilitate the purchase of server components were $10.5 billion and $9.2 billion, respectively, and are included in other current assets in our consolidated balance sheets. We record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of June 30, 2024 and 2023, our financing receivables, net were $4.5 billion and $5.3 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently available evidence. Assets Recognized from Costs to Obtain a Contract with a Customer We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtai --- In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico s

Oracle Cloud Operations deliver our Oracle Cloud Services to customers through a secure, reliable, scalable, enterprise grade cloud infrastructure platform managed by Oracle employees within a global network of data centers, which we refer to as the Oracle Cloud. The Oracle Cloud enables secure and isolated cloud-based instances for each of our customers to access the functionality of Oracle Cloud Services via a broad spectrum of devices. Oracle Cloud Operations leverage automated software tools to enable the rapid delivery of the latest cloud technology capabilities to the Oracle Cloud as they become available and provide Oracle customers access to the latest Oracle releases. We have invested in the rapid expansion of the Oracle Cloud by increasing existing data center capacity and adding data centers in new geographic locations to meet current and expected customer demand. We expect this trend will continue. --- If we are unable to secure data center capacity at affordable rates or do not accurately plan for our infrastructure capacity requirements, our profitability may decline. As a part of our Oracle Cloud strategy, we plan our investment levels based on estimates of future revenues and future anticipated rates of growth. In recent periods, our cloud services and license support expenses have grown to meet current and expected demand for our cloud offerings, including investments to increase our existing data center capacity and to establish data centers in new geographic locations. In connection with these investments, we entered, and expect to continue to enter, into long-term operating lease commitments with third-party data center providers that generally require us to pay significant contract termination fees to early exit such obligations should our strategies change, which could adversely impact our profitability and cash flows. Data centers in geographies that we rely on may also be unavailable on commercially reasonable terms or at all. Moreover, we do not control the operation of these third-party data centers, and they may suffer interruptions in service from events beyond --- Our hardware business, which represented 6% of our total revenues in each of fiscal 2024 and 2023, provides a broad selection of enterprise hardware products and hardware-related software products including Oracle Engineered Systems, servers, storage, industry-specific hardware offerings, operating systems, virtualization, management and other hardware-related software and related hardware support. Each hardware product and its related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation. The revenues for this combined performance obligation are generally recognized at the point in time that the hardware product and its related software are delivered to the customer and ownership is transferred to the customer. We expect to continue to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services. The majority of our hardware products are sold through indirect channels, including independent distributors and value-added resellers. Our hardware support offerings provide customers with unspecified softw --- From time to time since 2017, we have made investments in Ampere, a related party entity, in the form of equity and convertible debt instruments. The total carrying value of our investments in Ampere, after accounting for losses under the equity method of accounting, was $1.5 billion and $1.2 billion as of May 31, 2024 and 2023, respectively. We currently expect Ampere to continue to generate net losses in future periods but we remain confident in the long-term potential of Ampere’s server chips. --- In constant currency, our total cloud and license business’ expenses increased in fiscal 2024 relative to fiscal 2023 primarily due to higher techno

Basis of Financial Statements The consolidated financial statements include our accounts and the accounts of our wholly- and majority-owned subsidiaries. Noncontrolling interest positions of certain of our consolidated entities are reported as a separate component of consolidated equity from the equity attributable to Oracle’s stockholders for all periods presented. The noncontrolling interests in our net income were not significant to our consolidated results for the periods presented and therefore have not been presented separately and instead are included as a component of non-operating expenses, net in our consolidated statements of operations. Intercompany transactions and balances have been eliminated. The comparability of our consolidated financial statements as of and for the year ended May 31, 2022 was impacted by $4.7 billion of certain litigation related charges during fiscal 2022. During the first quarter of fiscal 2024, we finalized our adoption of Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent amendments to the initial guidance, which had no materi --- Remaining Performance Obligations from Contracts with Customers Trade receivables, net of allowance for credit losses, and deferred revenues are reported net of related uncollected deferred revenues in our consolidated balance sheets as of May 31, 2024 and 2023. The amount of revenues recognized during the year ended May 31, 2024 and 2023 that were included in the opening deferred revenues balance as of May 31, 2023 and 2022, respectively, was approximately $9.0 billion and $8.3 billion. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial during each year ended May 31, 2024, 2023 and 2022. Remaining performance obligations represent contracted revenues that had not yet been recognized, and include deferred revenues; invoices that have been issued to customers but were uncollected and have not been recognized as revenues; and amounts that will be invoiced and recognized as revenues in future periods. The volumes and amounts of customer contracts that we book and total revenues that we recognize are impacted by a variety of seasonal factors. In each fiscal year, the amounts and volumes of cont --- Fiscal 2024 Oracle Restructuring Plan During fiscal 2024, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our acquisitions and certain other operational activities (2024 Restructuring Plan). The total estimated restructuring costs associated with the 2024 Restructuring Plan are up to $635 million and will be recorded to the restructuring expense line item within our consolidated statements of operations as they are incurred through the end of the plan. We recorded $432 million of restructuring expenses in connection with the 2024 Restructuring Plan in fiscal 2024. Any changes to the estimates of executing the 2024 Restructuring Plan will be reflected in our future results of operations. Fiscal 2022 Oracle Restructuring Plan During fiscal 2022, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our acquisitions and certain other operational activities (2022 Restructuring Plan). In fiscal 2023, our management supplemented the 2022 Restructuring Plan to reflect additional actions that we expected to take. Restructuring costs --- At May 31, 2024, we had federal net operating loss carryforwards of approximately $322 million, which are subject to limitation on their utilization. Approximately $255 million of these federal net operating losses expire in various years between fiscal 2025 and fiscal 2038. Approximately $67 million of these federal net operating losses are not currently subject to expiration

Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $70.0 billion and $86.8 billion as of December 31, 2022 and 2023. Amounts held in foreign currencies were $18.3 billion and $23.5 billion as of December 31, 2022 and 2023. Our foreign currency balances include British Pounds, Canadian Dollars, Euros, Indian Rupees, and Japanese Yen. Cash provided by (used in) operating activities was $46.8 billion and $84.9 billion in 2022 and 2023. Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments. Cash received from our customers and other activities generally corresponds to our net sales. The increase in operating cash flow in 2023, compared to the prior year, was due to an increase in net income (loss), excluding non-cash expenses, and changes in working capital. Working capital at any specific point --- ___________________ (1)For the year ended December 31, 2022 and 2023, this amount relates to equipment included in “Property and equipment acquired under finance leases, net of remeasurements and modifications” of $675 million and $642 million. (2)For the year ended December 31, 2022 and 2023, this amount relates to property included in “Principal repayments of finance leases” of $7,941 million and $4,384 million. 29 --- Guidance We provided guidance on February 1, 2024, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of February 1, 2024, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part I, “Risk Factors.” First Quarter 2024 Guidance •Net sales are expected to be between $138.0 billion and $143.5 billion, or to grow between 8% and 13% compared with first quarter 2023. This guidance anticipates a favorable impact of approximately 40 basis points from foreign exchange rates. •Operating income is expected to be between $8.0 billion and $12.0 billion, compared with $4.8 billion in first quarter 2023. This guidance includes approximat --- Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, impairment of property and equipment and operating leases, valuation and impairment of investments, self-insurance liabilities, and viewing patterns of capitalized video content. Actual results could differ materially from these estimates. For example, in Q4 2023 we completed a useful life study for our servers and are increasing the useful life from five years to six years in January 2024, which, based on servers that are included in “Property and equipment, net” as of December 31, 2023, will have an anticipated impact to our 2024 operating income of $3.1 billi

Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in absolute dollars in 2023, compared to the prior year, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by fulfillment network efficiencies and lower transportation rates. Changes in foreign exchange rates reduced cost of sales by $254 million in 2023. Shipping costs were $83.5 billion and $89.5 billion in 2022 and 2023. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales --- Guidance We provided guidance on February 1, 2024, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of February 1, 2024, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part I, “Risk Factors.” First Quarter 2024 Guidance •Net sales are expected to be between $138.0 billion and $143.5 billion, or to grow between 8% and 13% compared with first quarter 2023. This guidance anticipates a favorable impact of approximately 40 basis points from foreign exchange rates. •Operating income is expected to be between $8.0 billion and $12.0 billion, compared with $4.8 billion in first quarter 2023. This guidance includes approximat

Net income$59,972 $73,795 $13,823 23 % Diluted EPS$4.56 $5.80 $1.24 27 % NM = Not Meaningful (1)    See "Use of Non-GAAP Constant Currency Information" below for details relating to our use of constant currency information. •Revenues were $307.4 billion, an increase of 9% year over year, primarily driven by an increase in Google Services revenues of $19.0 billion, or 8%, and an increase in Google Cloud revenues of $6.8 billion, or 26%. •Total constant currency revenues, which exclude the effect of hedging, increased 10% year over year. •Cost of revenues was $133.3 billion, an increase of 6% year over year, primarily driven by increases in content acquisition costs, compensation expenses, and TAC. The increase in compensation expenses included charges related to employee severance associated with the reduction in our workforce. Additionally, cost of revenues benefited from a reduction in depreciation due to the change in estimated useful lives of our servers and network equipment. •Operating expenses were $89.8 billion, an increase of 10% year over year, primarily driven by an increase in compensation expenses and charges related to our office space optimization efforts. The incre --- •On July 21, 2023, the IRS announced a rule change allowing taxpayers to temporarily apply the regulations in effect prior to 2022 related to U.S. federal foreign tax credits. This announcement applies to foreign taxes paid or accrued in the fiscal years 2022 and 2023. A cumulative one-time adjustment applicable to the prior period for this tax rule change was recorded in 2023 and is reflected in our effective tax rate of 13.9% for the year ended December 31, 2023. •Repurchases of Class A and Class C shares were $62.2 billion for the year ended December 31, 2023. For additional information, see Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. •Operating cash flow was $101.7 billion for the year ended December 31, 2023. •Capital expenditures, which primarily reflected investments in technical infrastructure, were $32.3 billion for the year ended December 31, 2023. •As of December 31, 2023, we had 182,502 employees. --- Cost of revenues increased $7.1 billion from 2022 to 2023 due to an increase in other cost of revenues and TAC of $5.2 billion and $1.9 billion, respectively. The increase in TAC from 2022 to 2023 was largely due to an increase in TAC paid to distribution partners, primarily driven by growth in revenues subject to TAC. The TAC rate decreased from 21.8% to 21.4% from 2022 to 2023 primarily due to a revenue mix shift from Google Network properties to Google Search & other properties. The TAC rate on Google Search & other revenues and the TAC rate on Google Network revenues were both substantially consistent from 2022 to 2023. The increase in other cost of revenues from 2022 to 2023 was primarily due to increases in content acquisition costs, largely for YouTube, and compensation expenses, which included $479 million of charges related to employee severance associated with the reduction in our workforce. Additionally, other cost of revenues benefited from a reduction in depreciation expense due to the change in estimated useful lives of our servers and network equipment. The increase in other cost of revenues of $11.9 billion from 2021 to 2022 was primarily due to increases in device --- R&D expenses increased $5.9 billion from 2022 to 2023 primarily driven by an increase in compensation expenses of $2.9 billion, $870 million in charges related to our office space optimization efforts, and an increase in depreciation expense of $722 million. The $2.9 billion increase in compensation expenses was largely the result of a 4% increase in average headcount, after adjusting for roles affected by the reduction in our workforce, and an increase in SBC expense. Additionally, the increase in compensation expenses included $848 million in employee severance charges associated

During the years ended December 31, 2022 and 2023, we spent $31.5 billion and $32.3 billion on capital expenditures, respectively. We expect to increase, relative to 2023, our investment in our technical infrastructure, including servers, network equipment, and data centers, to support the growth of our business and our long-term initiatives, in particular in support of AI products and services. Depreciation of our property and equipment commences when the deployment of such assets are completed and are ready for our intended use. Land is not depreciated. For the years ended December 31, 2022 and 2023, our depreciation on property and equipment were $13.5 billion and $11.9 billion, respectively. Leases For the years ended December 31, 2022 and 2023, we recognized total operating lease assets of $4.4 billion and $2.9 billion, respectively. As of December 31, 2023, the amount of total future lease payments under operating leases, which had a weighted average remaining lease term of eight years, was $17.7 billion, of which $3.2 billion is short-term. As of December 31, 2023, we have entered into leases that have not yet commenced with future short-term and long-term lease payments --- (1)    Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas"). Revenue Backlog As of December 31, 2023, we had $74.1 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud. Our revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenue. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by our ability to deliver in accordance with relevant contract terms and when our customers utilize services. We expect to recognize approximately half of the revenue backlog as revenues over the next 24 months with the remaining to be recognized thereafter. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods, and excludes contracts with an original expected term of one year or less and cancellable contracts. Deferred Revenues We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Deferred revenues primaril --- Note 13. Compensation Plans Stock Plans Our stock plans include the Alphabet Amended and Restated 2021 Stock Plan ("Alphabet 2021 Stock Plan") and Other Bets stock-based plans. Under our stock plans, RSUs and other types of awards may be granted. Under the Alphabet 2021 Stock Plan, an RSU award is an agreement to issue shares of our Class C stock at the time the award vests. RSUs generally vest over four years contingent upon employment on the vesting date. As of December 31, 2023, there were 723 million shares of Class C stock reserved for future issuance under the Alphabet 2021 Stock Plan. Stock-Based Compensation For the years ended December 31, 2021, 2022, and 2023, total SBC expense was $15.7 billion, $19.5 billion, and $22.1 billion, including amounts associated with awards we expect to settle in Alphabet stock of $15.0 billion, $18.8 billion, and $21.7 billion, respectively. During the year ended December 31, 2023, total SBC expense includes $432 million associated with workforce reduction costs. See Note 8 for further details. For the years ended December 31, 2021, 2022, and 2023, we recognized tax benefits on total SBC expense, which are reflected in the provision

The security of our products and services is important in our customers’ decisions to purchase or use our products or services across cloud and on-premises environments. Security threats are a significant challenge to companies like us whose business is providing technology products and services to others. Threats to our own IT infrastructure can also affect our customers. Customers using our cloud-based services rely on the security of our infrastructure, including hardware and other elements provided by third parties, to ensure the reliability of our services and the protection of their data. Adversaries tend to focus their efforts on the most popular operating systems, programs, and services, including many of ours, and we expect that to continue. In addition, adversaries can attack our customers’ on-premises or cloud environments, sometimes exploiting previously unknown (“zero day”) vulnerabilities, such as occurred in early calendar year 2021 with several of our Exchange Server on-premises products. Vulnerabilities in these or any product can persist even after we have issued security patches if customers have not installed the most recent updates, or if the attackers exploite --- Cyberattacks may adversely impact our customers even if our production services are not directly compromised. We are committed to notifying our customers whose systems have been impacted as we become aware and have actionable information for customers to help protect themselves. We are also committed to providing guidance and support on detection, tracking, and remediation. We may not be able to detect the existence or extent of these attacks for all of our customers or have information on how to detect or track an attack, especially where an attack involves on-premises software such as Exchange Server where we may have no or limited visibility into our customers’ computing environments. --- We may have excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure. Our increasing user traffic, growth in services, and the complexity of our products and services demand more computing power. We spend substantial amounts to build, purchase, or lease datacenters and equipment and to upgrade our technology and network infrastructure to handle more traffic on our websites and in our datacenters. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components. The cost or availability of these dependencies could be adversely affected by a variety of factors, including the transition to a clean energy economy, local and regional environmental regulations, and geopolitical disruptions. These demands continue to increase as we introduce new products and services and support the growth and the augmentation of existing services such as Bing, Azure, Microsoft Account services, Microsoft 365, Microsoft Teams, Dynamics 365, OneDrive, SharePoint Online, Skype, Xbox, and Outlook.com thro --- In July 2022, we completed an assessment of the useful lives of our server and network equipment. Due to investments in software that increased efficiencies in how we operate our server and network equipment, as well as advances in technology, we determined we should increase the estimated useful lives of both server and network equipment from four years to six years. This change in accounting estimate was effective beginning fiscal year 2023. Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2022, the effect of this change in estimate for fiscal year 2023 was an increase in operating income of $3.7 billion and net income of $3.0 billion, or $0.40 per both basic and diluted share. --- •Server products and cloud services revenue increased $12.6 billion or 19% driven by Azure and other cloud services. Azur

Acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business. We expect to continue making acquisitions and entering into joint ventures and strategic alliances as part of our long-term business strategy. For example, in March 2021 we completed our acquisition of ZeniMax Media Inc. for $8.1 billion, and in March 2022 we completed our acquisition of Nuance Communications, Inc. for $18.8 billion. In January 2022 we announced a definitive agreement to acquire Activision Blizzard, Inc. for $68.7 billion. In January 2023 we announced the third phase of our OpenAI strategic partnership. Acquisitions and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that they raise new compliance-related obligations and challenges, that we have difficulty integrating and retaining new employees, business systems, and technology, that they distract management from our other businesses, or that announced transactions may not be completed. If an arrangement fails to adequately anticipate changing circumstances and interests of a --- We returned $9.7 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2023. Refer to Note 16 – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding share repurchases and dividends. --- On January 18, 2023, we announced decisions we made to align our cost structure with our revenue and customer demand, prioritize our investments in strategic areas, and consolidate office space. As a result, we recorded a $1.2 billion charge in the second quarter of fiscal year 2023 (“Q2 charge”), which included employee severance expenses of $800 million, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities. First, we reduced our overall workforce by approximately 10,000 jobs through the third quarter of fiscal year 2023 related to the Q2 charge, which represents less than 5% of our total employee base. While we eliminated roles in some areas, we will continue to hire in key strategic areas. Second, we are allocating both our capital and talent to areas of secular growth and long-term competitiveness, while divesting in other areas. Third, we are consolidating our leases to create higher density across our workspaces, which impacted our financial results through the remainder of fiscal year 2023, and we may make similar decisions in future periods as we continue to evaluate our real estate needs. --- In July 2022, we completed an assessment of the useful lives of our server and network equipment. Due to investments in software that increased efficiencies in how we operate our server and network equipment, as well as advances in technology, we determined we should increase the estimated useful lives of both server and network equipment from four years to six years. This change in accounting estimate was effective beginning fiscal year 2023. Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2022, the effect of this change in estimate for fiscal year 2023 was an increase in operating income of $3.7 billion and net income of $3.0 billion, or $0.40 per both basic and diluted share. --- Our effective tax rate for fiscal years 2023 and 2022 was 19% and 13%, respectively. The increase in our effective tax rate was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties and a decrease in tax benefits relating to stock-based compensation. --- In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the U.S. The transfer of intangible properties resulted

Oracle Cloud Operations deliver our Oracle Cloud Services to customers through a secure, reliable, scalable, enterprise grade cloud infrastructure platform managed by Oracle employees within a global network of data centers, which we refer to as the Oracle Cloud. The Oracle Cloud enables secure and isolated cloud-based instances for each of our customers to access the functionality of Oracle Cloud Services via a broad spectrum of devices. Oracle Cloud Operations leverage automated software tools to enable the rapid delivery of the latest cloud technology capabilities to the Oracle Cloud as they become available, providing Oracle customers access to the latest Oracle releases generally on a quarterly cadence. We have invested in the expansion of the Oracle Cloud by increasing existing data center capacity and adding additional data centers in new geographic locations to meet current and expected customer demand. We expect this trend will continue. --- As a part of our Oracle Cloud strategy, we plan our investment levels based on estimates of future revenues and future anticipated rates of growth. In recent periods, our cloud services and license support expenses have grown to meet current and expected demand for our cloud offerings, including investments to increase our existing data center capacity and to establish data centers in new geographic locations. In connection with these investments, we entered, and expect to continue to enter, into long-term operating lease commitments with third party data center providers that generally require us to pay significant contract termination fees to early exit such obligations should our strategies change, which could adversely impact our profitability and cash flows. In addition, we outfit these data centers with equipment and improvements that we typically depreciate over their estimated useful lives, which could be shortened should our cloud strategies change, which could adversely affect our profitability. --- Our hardware business, which represented 6% and 7% of our total revenues in fiscal 2023 and 2022, respectively, provides a broad selection of enterprise hardware products and hardware-related software products including Oracle Engineered Systems, servers, storage, industry-specific hardware offerings, operating systems, virtualization, management and other hardware-related software, and related hardware support. Each hardware product and its related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation. The revenues for this combined performance obligation are generally recognized at the point in time that the hardware product and its related software are delivered to the customer and ownership is transferred to the customer. We expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services. The majority of our hardware products are sold through indirect channels, including independent distributors and value-added resellers. Our hardware support offerings provide customers with unspecified sof --- Excluding the effects of foreign currency rate fluctuations, our total operating expenses increased in fiscal 2023 relative to fiscal 2022 primarily due to additional operating expenses as a result of our acquisition of Cerner, including higher intangible assets amortization; higher cloud services and license support expenses, which were primarily due to higher employee related expenses and infrastructure investments that were made to support the increase in our cloud and license business’ revenues; higher hardware expenses, which were primarily due to incremental hardware product costs related to Cerner’s hardware business; higher restructuring expenses; and higher expenses across other operating expense categories primarily due to higher employee related expenses. Furthermore, during fi

As discussed in Note 2 of the financial statements, the Company completed the acquisition of Cerner Corporation during fiscal year 2023 for a total purchase price of $28.2 billion, which was accounted for as a business combination. In connection with this acquisition, management recognized customer relationship, order backlog, developed technology and trade name intangible assets of $12.0 billion. The valuation of the customer relationship and developed technology intangible assets is complex and judgmental due to the use of subjective assumptions in the valuation models used by management when determining their estimated fair value. In particular, the fair value estimates for the acquired assets are sensitive to changes in assumptions for revenue growth, and cost of revenues and operating expenses as a percentage of revenue. Auditing management’s valuation of customer relationship and developed technology intangible assets is complex due to the auditor judgment required to evaluate management’s assumptions used in determining the fair value of these assets. --- Table of Contents Index to Financial Statements   Use of Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC), and we consider various staff accounting bulletins and other applicable guidance issued by the SEC. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent that there are differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does no --- Table of Contents Index to Financial Statements   Remaining Performance Obligations from Customer Contracts Trade receivables, net of allowance for credit losses, and deferred revenues are reported net of related uncollected deferred revenues in our consolidated balance sheets as of May 31, 2023 and 2022. The amount of revenues recognized during the year ended May 31, 2023 and 2022 that were included in the opening deferred revenues balance as of May 31, 2022 and 2021, respectively, was approximately $8.3 billion and $8.8 billion. Revenues recognized from performance obligations satisfied in prior periods and impairment losses recognized on our receivables were immaterial during each year ended May 31, 2023, 2022 and 2021. Remaining performance obligations represent contracted revenues that had not yet been recognized, and include deferred revenues; invoices that have been issued to customers but were uncollected and have not been recognized as revenues; and amounts that will be invoiced and recognized as revenues in future periods. The volumes and amounts of customer contracts that we book and total revenues that we recognize are impacted by a variety of seasonal factors. In each --- Fiscal 2022 Oracle Restructuring Plan During fiscal 2022, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our acquisitions and certain other operational activities (2022 Restructuring Plan). In fiscal 2023, our management supplemented the 2022 Restructuring Plan to reflect additional actions that we expected to take. Restructuring costs associated with the 2022 Restructuring Plan were recorded to the restructuring expe

Operating income was $24.9 billion and $12.2 billion for 2021 and 2022. We believe that operating income is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services. The North America operating loss in 2022, as compared to the operating income in the prior year, is primarily due to increased fulfillment and shipping costs, due in part to increases in investments in our fulfillment network, transportation costs, and wage rates and incentives, increased technology and content costs, and growth in certain operating expenses, partially offset by increased unit sales, including sales by third-party sellers, and advertising sales. Changes in foreign currency exchange rates positively impacted operating loss by $274 million in 2022. The increase in International operating loss in absolute dollars in 2022, compared to the prior year, is primarily due to increased fulfillment and shipping costs, due in part to increases in investments in our fulfillment network, transportation costs, and wage rates and incentives, increased technology and content costs, and growth in certain operating expenses, partially offset by increased adv --- Other Operating Expense (Income), Net Other operating expense (income), net was $62 million and $1.3 billion during 2021 and 2022, and was primarily related to the amortization of intangible assets and, for 2022, $1.1 billion of impairments of property and equipment and operating leases. --- ___________________ (1)For the year ended December 31, 2021 and 2022, this amount relates to equipment included in “Property and equipment acquired under finance leases, net of remeasurements and modifications” of $7,061 million and $675 million. (2)For the year ended December 31, 2021 and 2022, this amount relates to property included in “Principal repayments of finance leases” of $11,163 million and $7,941 million. All of these free cash flows measures have limitations as they omit certain components of the overall cash flow statement and do not represent the residual cash flow available for discretionary expenditures. For example, these measures of free cash flows do not incorporate the portion of payments representing principal reductions of debt or cash payments for business acquisitions. Additionally, our mix of property and equipment acquisitions with cash or other financing options may change over time. Therefore, we believe it is important to view free cash flows measures only as a complement to our entire consolidated statements of cash flows. --- Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, impairment of property and equipment and operating leases, valuation and impairment of investments, self-insurance liabilities, and viewing patterns of capitalized video content. Actual results could differ materially from these estimates. We review the useful lives of equipment on an ongoing basis, and effective January 1, 2022 we changed our estimate of the useful lives for our servers from four years to five years and for our networking equipment from five years to six years. The longer useful lives are due to continuous improvements in our hardware, software, and data center designs. The effect of th --- Other Operating Expense (Income), Net Other operating expense (income), net, consists primarily of the amortization of intangible assets and, for 2020, a benefit from accelerated vesting of warrants to acquire equ

Cost of Sales Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music. The increase in cost of sales in absolute dollars in 2022, compared to the prior year, is primarily due to increased shipping and product costs resulting from increased sales and increases in investments in our fulfillment network, transportation costs, and wage rates and incentives. Changes in foreign exchange rates reduced cost of sales by $10.8 billion in 2022. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. Shipping costs, which include sortation and delivery centers and transportation costs, were $76.7 billion and $83.5 billion in 2021 and 2022. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, including faster deliver --- Guidance We provided guidance on February 2, 2023, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of February 2, 2023, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, as well as those outlined in Item 1A of Part I, “Risk Factors.” First Quarter 2023 Guidance •Net sales are expected to be between $121.0 billion and $126.0 billion, or to grow between 4% and 8% compared with first quarter 2022. This guidance anticipates an unfavorable impact of approximately 210 basis points from foreign exchange rates. •Operating income is expected to be between $0 and $4.0 billion, compared with $3.7 billion in first qu --- Digital Video and Music Content We obtain video content, inclusive of episodic television and movies, and music content for customers through licensing agreements that have a wide range of licensing provisions including both fixed and variable payment schedules. When the license fee for a specific video or music title is determinable or reasonably estimable and the content is available to us, we recognize an asset and a corresponding liability for the amounts owed. We reduce the liability as payments are made and we amortize the asset to “Cost of sales” on an accelerated basis, based on estimated usage or viewing patterns, or on a straight-line basis. If the licensing fee is not determinable or reasonably estimable, no asset or liability is recorded and licensing costs are expensed as incurred. We also develop original video content for which the production costs are capitalized and amortized to “Cost of sales” predominantly on an accelerated basis that follows the estimated viewing patterns associated with the content. The weighted average remaining life of our capitalized video content is 2.6 years. We review usage and viewing patterns impacting the amortization of capitalized vi --- In July 2022, we entered into an agreement to acquire 1Life Healthcare, Inc. (One Medical) for approximately $3.9 billion, including its debt, subject to customary closing conditions. In August 2022, we entered into an agreement to acquire iRobot Corporation for approximately $1.7 billion, including its debt, subject to customary closing conditions. We expect to fund these acq

The security of our products and services is important in our customers’ decisions to purchase or use our products or services across cloud and on-premises environments. Security threats are a significant challenge to companies like us whose business is providing technology products and services to others. Threats to our own IT infrastructure can also affect our customers. Customers using our cloud-based services rely on the security of our infrastructure, including hardware and other elements provided by third parties, to ensure the reliability of our services and the protection of their data. Adversaries tend to focus their efforts on the most popular operating systems, programs, and services, including many of ours, and we expect that to continue. In addition, adversaries can attack our customers’ on-premises or cloud environments, sometimes exploiting previously unknown (“zero day”) vulnerabilities, such as occurred in early calendar year 2021 with several of our Exchange Server on-premises products. Vulnerabilities in these or any product can persist even after we have issued security patches if customers have not installed the most recent updates, or if the attackers exploite --- Cyberattacks such as Solorigate/Nobelium may adversely impact our customers even if our production services are not directly compromised. We are committed to notifying our customers whose systems have been impacted as we become aware and have available information and actions for customers to help protect themselves. We are also committed to providing guidance and support on detection, tracking, and remediation. We may not be able to detect the existence or extent of these attacks for all of our customers or have information on how to detect or track an attack, especially where an attack involves on-premises software such as Exchange Server where we may have no or limited visibility into our customers’ computing environments. --- In the first quarter of fiscal year 2022, we made updates to the presentation and method of calculation for certain metrics, most notably changes to incorporate all current and anticipated revenue streams within our Office Consumer and Server products and cloud services metrics and changes to align with how we manage our Windows OEM and Search and news advertising businesses. None of these changes had a material impact on previously reported amounts in our MD&A. --- In the third quarter of fiscal year 2022, we completed our acquisition of Nuance. Nuance is included in all commercial metrics and our Server products and cloud services revenue growth metric. Azure and other cloud services revenue includes Nuance cloud services, and Server products revenue includes Nuance on-premises offerings. --- Gross margin percentage decreased slightly. Excluding the impact of the fiscal year 2021 change in accounting estimate for the useful lives of our server and network equipment, gross margin percentage increased 1 point driven by improvement in Productivity and Business Processes. --- Server products and cloud services revenue increased $14.7 billion or 28% driven by Azure and other cloud services. Azure and other cloud services revenue grew 45% driven by growth in our consumption-based services. Server products revenue increased 5% driven by hybrid solutions, including Windows Server and SQL Server running in multi-cloud environments. --- We expect existing cash, cash equivalents, short-term investments, cash flows from operations, and access to capital markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as dividends, share repurchases, debt maturities, material capital expenditures, and the transition tax related to the TCJA, for at least the next 12 months and thereafter for the foreseeable future. --- Cash from operations increased $12.3 billion to $89.0 billion for fiscal year 2022, mainly due to an increase in cash received from

Acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business. We expect to continue making acquisitions and entering into joint ventures and strategic alliances as part of our long-term business strategy. For example, in March 2021 we completed our acquisition of ZeniMax Media Inc. for $8.1 billion, and in March 2022 we completed our acquisition of Nuance Communications, Inc. for $18.8 billion. In January 2022 we announced a definitive agreement to acquire Activision Blizzard, Inc. for $68.7 billion. These acquisitions and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that they raise new compliance-related obligations and challenges, that we have difficulty integrating and retaining new employees, business systems, and technology, that they distract management from our other businesses, or that announced transactions may not be completed. If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination or renegotiation of the arrangemen --- We returned $12.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2022. Refer to Note 16 – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding share repurchases and dividends. --- Our effective tax rate for fiscal years 2022 and 2021 was 13% and 14%, respectively. The decrease in our effective tax rate was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties, offset in part by changes in the mix of our income before income taxes between the U.S. and foreign countries, as well as tax benefits in the prior year from the India Supreme Court decision on withholding taxes in the case of Engineering Analysis Centre of Excellent Private Limited vs The Commissioner of Income Tax, an agreement between the U.S. and India tax authorities related to transfer pricing, and final Tax Cuts and Jobs Act (“TCJA”) regulations. --- In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the U.S. The transfer of intangible properties resulted in a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022, as the value of future U.S. tax deductions exceeds the current tax liability from the U.S. global intangible low-taxed income tax. --- We have historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. In March 2021, the India Supreme Court ruled favorably for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. Therefore, we recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016. --- The mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2022, our U.S. income before income taxes was $47.8 billion and our foreign income before income taxes was $35.9 billion. In fiscal year 2021, our U.S. income before income taxes was $35.0 billion and our foreign income before income taxes was $36.1 billion. --- We settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011. In February 2012, the IRS withdrew its 2011 Revenue Agents

We exceeded our goal on increasing the percentage of transaction volumes with Black- and African American-owned financial institutions and increased our deposits with Black- and African American-owned minority depository institutions, enabling increased funds into local communities. Additionally, we enriched our supplier pipeline, reaching more than 90 percent of our goal to spend $500 million with double the number of Black and African American-owned suppliers. We also increased the number of identified partners in the Black Partner Growth Initiative and continue to invest in the partner community through the Black Channel Partner Alliance by supporting events focused on business growth, accelerators, and mentorship.