TLDR
- Microsoft delivered Q3 revenue of $82.9B, surpassing the $81.29B analyst forecast
- Azure cloud platform revenue expanded 40%, matching projections
- Earnings per share reached $4.27, exceeding forecasts by $0.22
- Capital spending jumped 49% to $31.9B during the quarter
- MSFT shares declined nearly 5% following the report, as investors fixated on escalating capex and OpenAI dependencies
Microsoft (MSFT) exceeded Wall Street’s fiscal third-quarter earnings projections, yet shares tumbled nearly 5% on Thursday as market participants zeroed in on escalating capital investments and the tech giant’s expanding relationship with OpenAI.
The quarter’s revenue reached $82.9 billion, outpacing the Wall Street consensus of $81.29 billion. Earnings per share on a diluted basis totaled $4.27, surpassing analyst estimates of $4.05 by $0.22.
Azure cloud platform revenue expanded 40% during the January-March period, precisely matching the 40% consensus projection from Visible Alpha. Microsoft Cloud revenue totaled $54.5 billion, representing a 29% year-over-year increase, or 25% when measured in constant currency terms.
Chief Executive Satya Nadella revealed that Microsoft’s AI business has crossed an annual revenue run rate of $37 billion, marking a 123% year-over-year jump. “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,” Nadella stated.
The robust cloud performance provided some comfort to market participants who had been scrutinizing whether Microsoft’s substantial AI investments were actually driving customer demand. Emarketer analyst Gadjo Sevilla observed that the figures indicate “the spending is still translating into cloud demand rather than just margin drag.”
Capital Spending Surges
Capital investments surged 49% to $31.9 billion during the quarter. This follows the $37.5 billion in capex recorded in Q2. These figures reflect Microsoft’s continued expansion of data center capacity as cloud infrastructure providers are projected to spend more than $600 billion collectively on AI infrastructure throughout this year.
Such aggressive spending has created pressure on cash generation, and market watchers remain focused on determining when these investments will begin delivering substantial returns.
Raymond James analyst Andrew Marok recognized the earnings beat but maintained a cautious perspective. “This quarter should provide some reassurance to investors and a bit of a sentiment reprieve, but does not solve the longer-term issues of OpenAI exposure, rising capex costs, and uncertainty around the Azure capacity/demand breakeven timeline,” he commented.
OpenAI Partnership Under Scrutiny
Earlier in the week, Microsoft renegotiated its partnership with OpenAI to guarantee a 20% stake in the startup’s revenue through 2030, irrespective of technological developments. While this arrangement secures a predictable revenue source, it also binds Microsoft more tightly to OpenAI’s future performance.
Microsoft has additionally integrated Anthropic’s Claude models into its cloud offerings, including Copilot, responding to increasing demand for those AI models.
Deutsche Bank reduced its price target on MSFT to $550 from $575 on Thursday, while maintaining a Buy rating. The investment firm characterized the Q3 results as “very solid” and noted that Microsoft “checked all the right boxes” with accelerating AI revenue growth.
MSFT traded down approximately 4.92% on Thursday in the wake of the earnings release.
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