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Microsoft (MSFT-0.92%) blew past Wall Street’s expectations in its fiscal third quarter, racking up $70.1 billion in revenue, up 13%, and $25.8 billion in net income, up 18%, fueled by relentless demand for cloud and AI.
Earnings came in at $3.46 per share, easily topping consensus estimates of $3.22.
Cloud stays hot
Microsoft’s cloud engine kept roaring in Q3, with Azure and other cloud services surging 33% year-over-year, powering a 21% increase in the all-important Intelligent Cloud segment, which hit $26.8 billion. Server product revenue rose 22% as demand for AI infrastructure stayed hot.
Microsoft 365 and Xbox deliver, LinkedIn grows
The Productivity and Business Processes segment brought in $29.9 billion, up 10% from last year, driven by steady growth in Microsoft 365 and Dynamics. Microsoft 365 Commercial revenue rose 11%, with its cloud-based suite climbing 12%, while consumer revenue grew 10%. Dynamics 365 jumped 16%, lifting Dynamics overall by 11%.
LinkedIn notched a 7% gain, which may look unimpressive to some but feels like a feat in this sluggish job market. (For context, it’s down from 10% revenue growth last year, and 9% revenue growth in Q2 2025.)
Meanwhile, More Personal Computing generated $13.4 billion, a 6% increase. Xbox content and services rose 8%, search and news advertising surged 21%, and Windows OEM and Devices grew 3% — a rare bright spot in the otherwise sleepy PC category.
Microsoft also returned $9.7 billion to shareholders via dividends and buybacks.
Earnings call focused on demand and hyperscaling
On the earnings call, Microsoft executives emphasized the sheer pace of AI-related demand, saying they can’t build data centers fast enough. Hyperscaling — the rapid expansion of cloud infrastructure — has become systemic, driven not just by digital-native startups but by major enterprise customers across industries.
Microsoft cited Abercrombie & Fitch (ANF-0.62%), Coca-Cola (KO-0.01%), and BNY Mellon (BK-0.81%) as examples of large-scale customers leaning heavily into both AI and non-AI workloads. Management noted that digital-native clients increasingly run both workloads in the same cloud, deepening the stickiness of the relationship.
AI vs. Non-AI Growth
Although analysts zeroed in on AI during the call, management was quick to point out that the bulk of revenue growth this quarter came from non-AI workloads.
Still, the AI story remains compelling: Microsoft has effectively turned its capital expenditures — on GPUs, CPUs, storage, and infrastructure — into revenue, creating what one analyst called an “inspiring” Azure performance. Executives described a blurred line between AI and non-AI usage, reflecting how integrated AI has become across Microsoft’s cloud offerings.
Forward guidance
Microsoft is guiding for a strong finish to its fiscal year, forecasting Q4 revenue of $28.75 to $29.05 billion for its Intelligent Cloud segment, reflecting 20% to 22% growth in constant currency, and $32.05 to $32.35 billion for Productivity and Business Processes, or 11% to 12% growth.
Revenue from the More Personal Computing segment is expected to come in between $12.35 and $12.85 billion. Despite heavy AI infrastructure investment, the company still expects Microsoft Cloud gross margins to land around 67%, down from the prior year. Overall operating expenses are set to grow modestly to $18 to $18.1 billion, while COGS will rise more sharply, reaching $23.6 to $23.8 billion, reflecting a 20% increase.
Azure remains the central growth engine, with revenue expected to climb 34% to 35% in constant currency. Microsoft anticipates 365 Commercial cloud revenue will rise around 14%, while projecting the consumer version to grow in the mid-teens. The tech giant expects LinkedIn to deliver high single-digit growth, and Dynamics 365 is set to rise in the mid-to-high teens.
In More Personal Computing, Xbox content and services are expected to grow in the high single digits, and search and news advertising is projected to jump in the high teens.
Flashback to Q2
Microsoft turned in a similarly strong showing last quarter, posting $69.6 billion in revenue, up 12%, and $24.1 billion in net income, up 10%, with EPS of $3.23. Microsoft Cloud revenue jumped 21% to $40.9 billion, powered by a 31% gain in Azure and other cloud services. CEO Satya Nadella touted a $13 billion annualized run rate for the company’s AI business — up 175% year-over-year.
Productivity and Business Processes rose 14%, lifted by Microsoft 365, LinkedIn, and Dynamics. More Personal Computing was flat, but search advertising, up 21%, and modest growth in Xbox and Windows OEM, helped balance things out.
Even so, investors sold the news: Microsoft shares fell 6% the next day.
This time, however, the momentum looks like it’ll last. The stock is up 8% after hours.