Microsoft Surpasses Q3 Earnings Estimates as AI and Cloud Drive Strong Growth
Image Credit: Matthew Manuel | Splash
Microsoft Corporation announced its fiscal third-quarter results for 2025, ending March 31, 2025, surpassing Wall Street expectations for the fourth consecutive quarter. The company reported earnings of US$3.46 per share on revenue of US$70.1 billion, exceeding analyst predictions of US$3.22 per share and US$68.48 billion in revenue. This marks a 13% year-over-year revenue increase, with net income rising 18% to US$25.8 billion. These results reflect Microsoft’s robust financial health and its strategic focus on high-growth sectors, particularly artificial intelligence and cloud computing.
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Azure Cloud Growth Fueled by AI Demand
Microsoft’s Azure cloud computing division, part of its Intelligent Cloud segment, saw a 33% year-over-year revenue increase, contributing significantly to the company’s overall performance. The Intelligent Cloud segment generated US$26.8 billion, surpassing the US$26.16 billion expected by analysts. Within Azure, AI services accounted for approximately 16 percentage points of the growth, highlighting the surging demand for AI-driven solutions. CEO Satya Nadella noted that Azure’s expansion is supported by growing cloud migration across industries, with clients like Abercrombie & Fitch and Coca-Cola adopting Microsoft’s services. The company is scaling its data center infrastructure to meet this demand, with ongoing investments to support AI and cloud workloads.
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AI as a Transformative Force
Nadella emphasized AI’s transformative potential, comparing its impact to that of electricity. Microsoft’s AI initiatives, including its Azure AI Foundry and GitHub Copilot, are gaining traction. Over 15 million people now use GitHub Copilot, a fourfold increase from last year, and Azure AI Foundry supports over 200,000 monthly active users. Microsoft’s partnership with OpenAI, the developer of ChatGPT, remains a cornerstone of its AI strategy. A new Azure contract with OpenAI contributed to an 18% rise in commercial bookings, though specific details of the deal were not disclosed. Nadella also highlighted that 20% to 30% of Microsoft’s code is now AI-generated, underscoring AI’s role in internal operations.
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Strategic Investments and Partnerships
Microsoft has committed US$80 billion in fiscal 2025 to bolster its AI infrastructure, focusing on data centers equipped for AI workloads. This follows a record US$22.6 billion in capital expenditures in the prior quarter. The company’s investment in OpenAI, totalling nearly US$14 billion to date, has fuelled Azure’s AI capabilities but also incurred losses, with US$623 million reported in “other expense” due to equity method investments, including OpenAI. Recently, Microsoft adjusted its OpenAI partnership, securing a right of first refusal for new computing capacity rather than exclusive delivery obligations. This shift aligns with OpenAI’s Stargate AI infrastructure project, announced alongside Oracle and SoftBank.
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Other Business Segments
Beyond cloud and AI, Microsoft’s Productivity and Business Processes segment, which includes Office and LinkedIn, grew 10% to US$29.9 billion, beating expectations of US$29.57 billion. The More Personal Computing segment, encompassing Windows and gaming, rose 6% to US$13.4 billion, driven by a 3% increase in Windows licenses and device sales. However, LinkedIn’s Talent Solutions faced challenges due to a weak hiring market. Microsoft returned US$9.7 billion to shareholders through dividends and share repurchases, reflecting confidence in its financial position.
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Market Response and Outlook
Following the earnings release on April 30, 2025, Microsoft’s shares surged 9% in extended trading, reflecting investor optimism about its AI and cloud growth. The company issued guidance for the next quarter, projecting revenue between US$73.15 billion and US$74.25 billion, above the US$72.26 billion consensus. Azure growth is expected to remain strong at 34% to 35% in constant currency. However, concerns linger about tariff uncertainties under President Trump’s policies, which could impact future performance. Nadella emphasized Microsoft’s adaptability, citing its history of adjusting data center plans to meet market needs.
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