TLDR
- Microsoft posted Q3 revenue of $82.9B, beating the $81.29B estimate
- Azure cloud revenue grew 40%, meeting expectations
- EPS came in at $4.27, beating estimates by $0.22
- Capital expenditure rose 49% to $31.9B in the quarter
- MSFT stock dropped nearly 5% despite the beat, as OpenAI exposure and rising capex weighed on sentiment
Microsoft (MSFT) beat Wall Street’s earnings expectations for its fiscal third quarter, but the stock still fell close to 5% on Thursday as investors focused on rising capital costs and the company’s deepening ties to OpenAI.
Revenue for the quarter came in at $82.9 billion, ahead of the consensus estimate of $81.29 billion. Diluted EPS hit $4.27, beating the $4.05 estimate by $0.22.
Azure cloud revenue grew 40% in the January-March quarter, right in line with the 40% consensus estimate from Visible Alpha. Microsoft Cloud revenue reached $54.5 billion, up 29% year-over-year, or 25% in constant currency.
CEO Satya Nadella said Microsoft’s AI business has now surpassed an annual revenue run rate of $37 billion, up 123% year-over-year. “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 said.
The strong cloud numbers offered some relief to investors who had been watching whether Microsoft’s heavy AI spending was actually generating demand. Emarketer analyst Gadjo Sevilla noted the results suggest “the spending is still translating into cloud demand rather than just margin drag.”
Capex Climbs Again
Capital expenditure rose 49% to $31.9 billion in the quarter. That follows $37.5 billion in capex during Q2. The numbers reflect Microsoft’s ongoing push to build out data center infrastructure as cloud providers are expected to collectively spend over $600 billion on AI infrastructure this year.
That level of spending has put pressure on cash flows, and investors are still watching closely to see when the investment starts generating returns at scale.
Raymond James analyst Andrew Marok acknowledged the beat but was measured in his take. “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 said.
OpenAI Ties in Focus
Earlier this week, Microsoft restructured its agreement with OpenAI to secure a 20% share of the startup’s revenue through 2030, regardless of how the technology evolves. The move locks in a revenue stream but also keeps Microsoft closely tied to OpenAI’s trajectory.
Microsoft has also added Anthropic’s Claude models to its cloud services, including Copilot, as demand for those models has grown.
Deutsche Bank lowered its price target on MSFT to $550 from $575 on Thursday, while keeping a Buy rating. The firm called the Q3 report “very solid” and said Microsoft “checked all the right boxes” with accelerating AI growth.
MSFT was trading down around 4.92% on Thursday following the results.
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