Microsoft beat Q3 earnings expectations, but after-hours trading remained flat as the company warned of rising AI infrastructure costs and issued a lower-than-expected Q4 guidance.
The Numbers: Earnings of $4.27 per share (vs. $4.06 estimate). Revenue of $82.89 billion (vs. $81.39B estimate). Net income rose to $31.78 billion.
The Miss: CFO Amy Hood forecast Q4 revenue between $86.7B and $87.8B-below the Street’s $87.53B consensus. Margins are expected to drop to 44%, missing the 44.6% target.
Capex Surprise: Microsoft now expects $190B in capital expenditure this year, a 61% increase. Analysts had estimated $154.6B. The increase is driven by memory chip and component costs for AI data centers.
Azure Growth: Revenue from Azure and other cloud services grew 40%, slightly beating the Street's expectation of 39.3%. The Intelligent Cloud segment generated $34.68B.
Copilot Adoption: CEO Satya Nadella said Microsoft 365 Copilot now has 20 million seats, up from 15 million three months ago. Weekly engagement matches Outlook levels.
AI Revenue: Annualized AI revenue now exceeds $37 billion, up 123% from a year ago.
Revised OpenAI Deal: The partnership was restructured, ending revenue share payments to OpenAI and breaking Azure’s exclusivity. Microsoft retains a royalty-free license to OpenAI’s IP until 2032.
Stock Slide: Microsoft shares are down 12% year-to-date, marking the worst quarterly performance since 2008.