Microsoft (MSFT) Stock: Azure Grows 40% as Q3 Earnings Top Estimates

TLDR

• Microsoft beat Q3 estimates with EPS of $4.27 vs. $4.05 expected, on revenue of $82.9 billion
• Azure cloud revenue grew 40% year-over-year, topping analyst estimates of 37.9%
• Capex rose 49% to $31.9 billion; free cash flow fell 22% to $15.8 billion
• M365 Copilot surpassed 20 million paid seats, up from 15 million last quarter
• Q4 Azure growth guided at 39–40%, ahead of Wall Street’s 36.8% estimate

Microsoft delivered a strong fiscal Q3, beating on both the top and bottom lines. But the real headline was Azure.

Cloud revenue grew 40% year-over-year, beating the 37.9% Wall Street had penciled in. That number matters a lot right now, given how closely investors are watching Microsoft’s ability to turn AI infrastructure spending into actual growth.

The company posted adjusted EPS of $4.27 on revenue of $82.9 billion. Analysts had expected $4.05 and $81.4 billion respectively, per FactSet. Year-over-year revenue growth came in at 18.3%.

Microsoft Corporation, MSFT

The stock initially dropped in after-hours trading before recovering as guidance came through on the earnings call.

Capex Climbs, Free Cash Flow Takes a Hit

Capital expenditures for the quarter hit $31.9 billion, up 49% from a year ago. Free cash flow dropped 22% to $15.8 billion as Microsoft continues to pour money into AI and cloud infrastructure.

Management flagged that capex will climb further — Q4 spending is expected to top $40 billion. Full-year capex is now projected at around $190 billion, well above the $160 billion Wall Street had been modeling.

Cantor Fitzgerald kept its Overweight rating and $502 price target following the results. The firm raised its fiscal 2027 revenue forecasts on Azure strength, though it trimmed gross margin estimates by 140 basis points and cut free cash flow projections due to the heavier spending.

DA Davidson maintained a Buy rating but lowered its price target to $550 from $650.

Azure is now approaching a $170 billion annual run rate, per Cantor Fitzgerald. Capacity constraints and component shortages, including memory, remain a factor management called out on the call.

Copilot Seat Count Crosses 20 Million

M365 Copilot paid seats exceeded 20 million, up from 15 million reported last quarter. GitHub Copilot usage was also cited as a driver of higher-than-expected service costs, which pressured gross margins.

For Q4, Microsoft guided total revenue of $86.7 billion to $87.8 billion. The midpoint lands just below the $87.6 billion analyst consensus.

MSFT is down about 12% year-to-date heading into these results. Part of that has been pressure around concerns that newer AI models could erode demand for traditional software products.

The stock was flat in after-hours trading after guidance was released.

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