TLDR
- Azure cloud revenue grew 39% year over year in Q4, driven by rising AI demand.
- Microsoft has a $625 billion backlog for AI computing it is working to fulfill.
- Q3 earnings beat expectations: EPS of $4.14 vs. $3.86 estimate; revenue of $81.27B, up 16.7% year over year.
- Some institutional investors and a fund manager are switching from Copilot to Anthropic’s Claude, flagging competitive pressure.
- Analyst consensus remains “Moderate Buy” with an average price target of $586.26, well above the current price of around $370.
Microsoft is one of the few tech giants that can point to actual, measurable revenue from artificial intelligence — not just promises of future returns.
The company makes AI money in two main ways: through its Copilot add-on and through Azure, its cloud computing division.
Copilot is baked into nearly every Microsoft Office product. Users pay extra to access it, giving Microsoft a direct revenue lift from its existing software base.
But Azure is where the real story is.
Azure Is the Engine
Azure grew revenue by 39% year over year in Q4. That number would have been even higher if Microsoft had not kept some of its new computing capacity for internal use instead of renting it out to customers.
The cloud model is straightforward. Microsoft builds data centers, then rents capacity to companies that need AI computing power but don’t want to build their own infrastructure.
As AI usage grows, so does Azure revenue. The demand is already there — Microsoft is currently sitting on a $625 billion backlog of AI computing orders it hasn’t yet been able to fulfill.
That backlog is the reason Microsoft keeps spending on new data center capacity. The infrastructure it has online now is not enough to run the AI workloads companies are asking for.
On the earnings front, Microsoft beat estimates in its most recent quarter. EPS came in at $4.14 versus the $3.86 analyst consensus. Revenue was $81.27 billion, up 16.7% year over year, beating the $80.28 billion estimate.
Research analysts predict Microsoft will post $13.08 EPS for the full fiscal year.
What Investors Are Watching
BNP Paribas analysts have said they believe Azure can still “crush estimates” despite concerns over $150 billion-plus in AI spending. The firm described Microsoft as being on a “war footing” with its Copilot overhaul.
Not everyone is sold on Copilot, though. At least one fund manager has publicly said they are switching from Microsoft’s Copilot to Anthropic’s Claude, citing the product feeling too similar to Microsoft Teams in terms of user experience.
On insider activity, EVP Kathleen T. Hogan sold 12,321 shares at an average price of $409.52 in March, reducing her stake by 8.2%. Director John W. Stanton went the other direction, buying 5,000 shares at $397.35 in February.
Institutional interest remains steady. Empirical Wealth Management raised its stake by 1.0% in Q4 to 229,603 shares worth roughly $111 million. Several other firms also added to positions during the quarter.
On the analyst side, KeyCorp, Mizuho, and JPMorgan all trimmed price targets following the January earnings report, though all maintained positive ratings. Goldman Sachs reaffirmed its “Buy” rating in February.
MSFT currently trades around $370.82, well below its 52-week high of $555.45. The 200-day moving average sits at $457.37, reflecting the stock’s pullback this year.
Microsoft’s next earnings report is scheduled for April 29.
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