Key Highlights
- Microsoft delivered Q3 revenue of $82.9B, surpassing Wall Street’s $81.29B forecast
- Azure platform revenue jumped 40%, in line with analyst projections
- Earnings per share reached $4.27, exceeding consensus by $0.22
- Capital spending surged 49% to $31.9B during the three-month period
- MSFT shares declined nearly 5% post-earnings as investors weighed OpenAI risks and escalating capex
Microsoft (MSFT) delivered fiscal third-quarter results that exceeded analyst projections, yet shares tumbled almost 5% on Thursday as market participants zeroed in on escalating infrastructure investments and the tech giant’s expanding relationship with OpenAI.
The Redmond-based company reported quarterly revenue of $82.9 billion, topping the Street’s $81.29 billion projection. Earnings per share on a diluted basis reached $4.27, outperforming the anticipated $4.05 by $0.22.
Azure cloud platform revenue expanded 40% during the January through March period, matching the 40% consensus forecast compiled by Visible Alpha. Microsoft Cloud revenue totaled $54.5 billion, representing a 29% increase from the prior year, or 25% when adjusted for currency fluctuations.
Chief Executive Satya Nadella announced that Microsoft’s AI-related business has achieved an annual revenue run rate exceeding $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 watchers who had questioned whether Microsoft’s substantial AI investments were driving meaningful revenue growth. Emarketer’s Gadjo Sevilla observed that the figures indicate “the spending is still translating into cloud demand rather than just margin drag.”
Infrastructure Spending Accelerates
Capital expenditures climbed 49% to $31.9 billion during the quarter. This comes after the company spent $37.5 billion on capex in the preceding quarter. These figures underscore Microsoft’s continued expansion of data center capabilities as cloud infrastructure providers are projected to invest more than $600 billion collectively in AI infrastructure throughout this year.
Such aggressive spending levels have created pressure on cash generation, with investors continuing to monitor when these investments will yield substantial returns.
Raymond James’ Andrew Marok recognized the earnings beat but maintained a cautious stance. “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 noted.
OpenAI Partnership Under Scrutiny
Earlier in the week, Microsoft renegotiated its partnership with OpenAI to guarantee a 20% stake in the AI startup’s revenue through 2030, independent of technological developments. While this arrangement secures a consistent revenue channel, it also binds Microsoft more tightly to OpenAI’s future performance.
Microsoft has additionally integrated Anthropic’s Claude AI models into its cloud platform offerings, including Copilot, responding to increasing market interest in those models.
Deutsche Bank adjusted its price target on MSFT downward to $550 from $575 on Thursday, while maintaining its Buy recommendation. The investment firm characterized the Q3 report as “very solid” and noted that Microsoft “checked all the right boxes” with strengthening AI revenue growth.
MSFT shares were trading down approximately 4.92% on Thursday in response to the quarterly report.
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