TLDR:
- Microsoft reported Q3 earnings of $3.22 per share on revenue of $68.4 billion, beating last year’s $2.94 per share on $61.9 billion
- Capital expenditure reached $16.2 billion, up from $11 billion a year ago
- Azure cloud revenue growth slowed slightly to 31% from 33% in the previous quarter
- The company is “slowing or pausing some early-stage” AI data center projects
- Trump’s tariffs may impact Microsoft products like Xbox and tablets, possibly affecting future demand
Microsoft reported third-quarter earnings after market close on Wednesday, beating analyst expectations with adjusted earnings of $3.22 per share on revenue of $68.4 billion. This marks an improvement from the same period last year when the company reported earnings of $2.94 per share on revenue of $61.9 billion.
The tech giant’s capital expenditure reached $16.2 billion this quarter. This figure is higher than the $11 billion spent a year ago and slightly above the $15.8 billion from the previous quarter.
Microsoft’s cloud performance remained strong but showed signs of slowing growth. Revenue from Azure and other cloud services increased by 31%, down from 33% growth in the previous quarter.
Investors were watching closely for any changes to Microsoft’s hefty AI investment plans. The company previously announced it would spend around $80 billion on AI-related investments this year.
However, there are hints that Microsoft may be scaling back some of its AI ambitions. Noelle Walsh, president of Microsoft Cloud Operations, recently stated in a LinkedIn post that the company is “slowing or pausing some early-stage” AI data center projects.
Market Reactions and Analyst Perspectives
Wall Street sentiment on Microsoft remains mixed heading into the earnings report. Bulls point to the company’s strong position in AI and the defensive nature of its business in an uncertain economic environment.
Bears, on the other hand, cite the reported slowdown in data center investments as a sign that AI may be entering oversupply territory.
Truist Securities analyst Joel Fishbein maintained a Buy rating on Microsoft with a $600 price target. Microsoft stock closed at $394.04 on Tuesday, up 0.7%.
Raymond James analyst Andrew Marok rates Microsoft as Outperform with a $480 price target.
Tariff Concerns and Economic Uncertainty
The earnings call was closely watched for guidance on how the Trump administration’s tariffs might impact Microsoft’s business. Products like the Xbox console and tablets could see price increases that may hurt demand.
Wedbush analyst Dan Ives suggested that 10%-15% of cloud and AI initiatives in the US could be pushed back or slowed down during this period of economic uncertainty.
Despite these concerns, recent strong outlooks from other software companies like SAP and ServiceNow indicate that businesses haven’t yet pulled back spending on software.
Microsoft stock has been under pressure recently, down about 7% year to date and 2% over the past 12 months.
Analysts expected growth to slow across Microsoft’s various business segments. Productivity and Business Processes were projected to reach $29.6 billion, a 9.8% increase compared to 11% last year.
Intelligent Cloud and Azure revenue were anticipated to grow at 18.2% and 30.9% respectively, down from 21% and 35% in Q3 2024.
The percentage of Azure revenue attributable to AI was expected to increase by 15.6%, the largest quarter-over-quarter jump since Q2 2024.
Microsoft’s More Personal Computing segment, which includes Windows licenses, gaming, and search divisions, was expected to post revenue of $12.6 billion, up less than 1% year over year.
The company plans to end support for Windows 10 in October, which could boost PC sales as users upgrade to Windows 11 systems.
Analysts believe Microsoft may have built extra conservatism into its fourth-quarter guidance given the current tariff uncertainty. As Jefferies analyst Brent Thill noted, management “may likely embed extra conservatism in F4Q guide.”
Microsoft reported third-quarter capital expenditures of $16.2 billion, continuing its massive investment in AI infrastructure despite recent reports of pausing some early-stage data center projects.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
