Microsoft (MSFT) shares jumped around 9% in after-hours trading on Wednesday following a strong third-quarter earnings report that handily exceeded Wall Street expectations. The tech titan’s performance was powered by explosive growth in its Azure cloud business, as well as a stronger-than-expected revenue outlook for the fourth quarter, which helped soothe investors’ nerves ahead of potential tariff uncertainty.
Microsoft Crushes Earnings Forecasts
For the fiscal third quarter ended March 31, Microsoft reported earnings per share (EPS) of $3.46, which beat the LSEG consensus EPS estimate of $3.22. Revenue was $70.07 billion, topping expectations of $68.42 billion. That represented a 13 percent year-over-year increase in revenue, with net income up 18 percent to $25.8 billion, from $21.9 billion last year.
Azure Cloud Fuels Growth
The Intelligent Cloud business, where Azure resides, was another highlight for the software maker — it brought in $26.75 billion in revenue (a 21% increase year over year), and beat the StreetAccount consensus of $26.16 billion. Azure itself delivered an impressive 33% revenue increase, with artificial intelligence (AI) contributing 16 percentage points, ahead of the 30.3% analysts had been expecting. It is further evidence of Microsoft’s cloud computing edge — a position the company has built up with the help of its innovations in AI.
Bullish Outlook Trumps Tariff Concerns
Adding to the fuel: Microsoft’s forward guidance also gave investors more juice. The company forecast fourth-quarter revenue of $73.15 billion to $74.25 billion, above the LSEG consensus of $72.26 billion. Azure growth is expected to be between 34% and 35% at constant currency, above the 31.5% expected by StreetAccount. The cheerier perspective comes as a welcomed salve in the wake of US President Donald Trump’s tariffs — announced earlier last month — that caused tech companies that depend on global supply chains to tremble out of fear of higher costs.
AI Investments Pay Off
The company’s massive AI and infrastructure bets helped fuel its Q3 performance. Capital expenditures were $16.75 billion, a 53% increase from last year, which topped a Visible Alpha prediction of $16.37 billion. The payoff, Microsoft’s chief executive, Satya Nadella, emphasized, would be tremendous: “Our investments in AI infrastructure are driving strong growth in Azure.” The company is on track to invest $80 billion in fiscal 2025 in data centers to house AI workloads, a strategy that could help ameliorate cost pressure associated with tariffs.
The finance chief, Amy Hood, pointed to improvement on the cloud execution, “We’ve seen improvement in our scale motions, though work remains.” She also said capabilities in AI have scaled up faster than expected, and that there may be some limitations past June as demand explodes.
Broader Business Highlights
Outside the cloud, Microsoft’s Productivity and Business Processes segment, which includes Office and LinkedIn, increased 10%, to $29.94 billion, beating the $29.57 billion consensus. The More Personal Computing unit, which includes Windows and devices, jumped by 6 percent to $13.37 billion, compared with the $12.66 billion estimate. Deployments of Windows 11 to commercial customers jumped 75%, one which occurred before Windows 10’s end-of-support in October.
Why This Matters
Microsoft’s beat on earnings and strong guidance suggest it is weathering choppy economic waters. Tariffs bring risks (especially for a company investing tens of billions dollars in overseas-sourced infrastructure), but Microsoft’s strategy in artificial intelligence (AI) and the cloud appears to be the right one. The 9% stock pop is evidence of a renewed investor confidence and makes Microsoft look like a tech leader ready to resume its growth days.
Disclaimer: This text is for information purposes only and does not constitute investment advice. As always do your own due diligence before investing.
