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The Ten Percent LineNarrow moat
Microsoft (MSFT) — moat facet
The concentration note stopped claiming that no customer reaches a tenth of revenue, in the quarter the largest one reached 10.8% - so the number that matters has moved to the related-party line.
Microsoft's revenue concentration disclosure is one of the least dramatic sentences in corporate filing: no sales to any individual customer, or to any country other than the United States, accounted for more than 10% of revenue in fiscal 2026, 2025 or 20241. Three consecutive years, no exceptions, nothing to elaborate. The same wording ran through all three quarterly reports of that fiscal year, and then, in the report for the September 2026 quarter, it did not: the disclosure now covers countries only3.
What sits behind it is the broadest enterprise customer base in technology. Microsoft sells to essentially every large organisation in the developed world and to a very large number of small ones — and it sells them several things at once, which is the more important point. A customer buying Office, Azure, security and developer tools on a single enterprise agreement is difficult to lose in a way that a customer buying one product is not, and the renewal is a negotiation about price rather than about whether to stay.
The qualification arrived this year, from a different disclosure entirely. Microsoft booked $24.1 billion from OpenAI in fiscal 20262 — 7.3% of revenue, which is to say the largest customer in the company's history was then within three points of the line Microsoft had spent three years reporting that nobody crosses. Nothing in the concentration sentence was untrue; it simply no longer implied what a reader would take from it. Three months later the same counterparty paid $10.0 billion in a single quarter, 10.8% of revenue4, and the sentence had been rewritten to cover countries alone.
The subtlety worth holding onto is that diffusion protects against losing any one customer, not against everyone spending less at once. Enterprise IT budgets move with the economy, and Microsoft's exposure is to the aggregate rather than to any individual account — with one exception, which it is now obliged to name. That remains true of the other hundreds of thousands of accounts. What has changed is where an owner should look: not at the concentration note, which no longer makes the claim, but at the related-party line, which discloses the one customer that matters because the accounting requires it rather than because the concentration rule does.
The base is still the broadest in enterprise technology, but the disclosure that protected it has been withdrawn: for four filings Microsoft said no customer reached 10% of revenue, and in the September 2026 quarter the sentence was narrowed to countries alone, with OpenAI at 10.8% of revenue. Diversification by name is intact; the reassurance is not.
Microsoft no longer states that no customer reaches 10% of revenue - the sentence was narrowed to countries in the September 2026 quarter - so the concentration note cannot be watched any more. The related-party note can: revenue from OpenAI was $10.0 billion against total revenue of $92,279 million. Watch whether that share keeps climbing, and whether the customer sentence ever returns.
- ReportedNo individual customer, or country other than the United States, accounted for more than 10% of revenue in fiscal 2026, 2025 or 2024.Microsoft Form 10-K, FY2026 — financial statements and notes: net income $133,749M, diluted EPS $17.95; segment revenue and operating income (Productivity and Business Processes $139,996M / $83,879M; Intelligent Cloud $137,791M / $56,972M; More Personal Computing $54,052M / $14,386M); revenue by product and service offering; additions to property and equipment $115,948M; net cash from operations $182,935M; unearned revenue $75,712M with $194,184M deferred and $185,737M recognised; revenue allocated to remaining performance obligations $684B, commercial $678B at a weighted average duration of about 2.3 years with approximately 30% expected within twelve months; contractual obligations $743,821M — FY2026 (ended June 30, 2026) · publ. July 29, 2026 · source ↗
- Moat Explorer calcMicrosoft booked $24.1 billion of revenue from OpenAI in fiscal 2026 — 7.3% of total revenue of $331,839M.Moat Explorer calculation from Microsoft Forms 10-K, FY2023-FY2026 — segment operating margin = segment operating income / segment revenue (Productivity and Business Processes $83,879M / $139,996M = 59.9% in FY2026 and $50,074M / $94,151M = 53.2% in FY2023; Intelligent Cloud $56,972M / $137,791M = 41.3%); free cash flow = net cash from operations less additions to property and equipment ($182,935M - $115,948M = $66,987M in FY2026; $118,548M - $44,477M = $74,071M in FY2024); capital spending as a share of operating cash flow (63% in FY2026, 38% in FY2024); Windows and Devices as a share of revenue ($17,084M / $331,839M = 5.1%); the near-term backlog = the disclosed percentage applied to the disclosed total ($205B of $684B in FY2026; $103B of $229B in FY2023); OpenAI's share of revenue = $24.1B / $331,839M = 7.3% — FY2023-FY2026 · publ. 2026 · source ↗
- ReportedIt was repeated in each of the three quarterly reports that followed the last of them, and then, in the report for the September 2026 quarter, it was not: the disclosure now covers countries only.Microsoft Form 10-Q for the quarter ended September 30, 2026 - segment note, narrowed: “No sales to an individual country other than the United States accounted for more than 10% of revenue for the three months ended September 30, 2026 or 2025.” — Q1 FY2027 · publ. 2026-10-29 · source ↗
- Moat Explorer calcThree months later the same counterparty paid $10.0 billion in a single quarter, 10.8% of revenue, and the sentence had been rewritten to cover countries alone.Moat Explorer calculation from Microsoft's Form 10-Q for the quarter ended September 30, 2026: revenue of $92,279 million, Azure revenue of $33,165 million, and revenue from commercial arrangements with OpenAI of $10.0 billion. — Q1 FY2027 · publ. 2026-10-29 · source ↗