Shares jump 6% on earnings beat; Azure growth and AI investment remain in focus as tariff uncertainty looms
Microsoft (NASDAQ:MSFT) shares surged more than 6% in after-hours trading on Wednesday after the company reported third-quarter results that beat Wall Street expectations on both earnings and revenue, driven largely by strong performance in its Azure cloud business and continued investment in artificial intelligence.
Cloud growth leads the charge
Revenue for the quarter ended March 31 rose 13% year-on-year to US$70.07bn, exceeding the US$68.42bn forecast by analysts. Net income climbed 18% to US$25.8bn, or US$3.46 per share—comfortably ahead of the expected US$3.22.
Azure, Microsoft’s flagship cloud platform, posted revenue growth of 33%, outperforming consensus estimates of around 30%. The company attributed nearly half that growth—16 percentage points—to AI services. The broader Intelligent Cloud division, which includes Azure, reported revenue of US$26.75bn, up 21% from the prior year.
“Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth,” said CEO Satya Nadella. Capital expenditure for the quarter jumped nearly 53% to US$16.75bn as Microsoft continued to expand its AI infrastructure.
AI investment and advertising growth
The tech giant has committed to spending US$80bn this fiscal year on data centres capable of supporting AI workloads, a strategy Nadella has framed as essential to Microsoft’s future. The company has integrated AI not only into cloud services but also advertising, with search and news ad revenue rising 21% year-over-year, thanks in part to new AI-driven formats like Showroom Ads and branded AI agents.
LinkedIn, however, showed signs of slowing growth, with revenue rising just 7% compared to double-digit growth last year.
Other business segments show steady gains
Microsoft’s Productivity and Business Processes segment—which includes Office 365 and LinkedIn—posted a 10% revenue rise to US$29.94bn. More Personal Computing revenue, including Windows, devices and gaming, grew 6% to US$13.37bn, beating expectations of US$12.66bn. Sales of Windows licenses to PC manufacturers rose 3%, bolstered by elevated inventory levels ahead of tariff uncertainty and the approaching Windows 10 end-of-life.
Gaming also delivered modest gains, with Xbox content and services revenue up 8%. Hardware revenue declined 6%, as expected, though Microsoft’s “Xbox everywhere” strategy—including ports to PlayStation and Nintendo platforms—has begun showing traction, with preorders topping Sony’s PlayStation Store last month.
Tariff tension casts shadow
Despite strong results, investors are watching closely for signs of how President Trump’s recently announced tariffs may affect future quarters. Microsoft executives have warned that the company’s reliance on imported hardware for AI infrastructure could expose it to higher costs.
President Brad Smith addressed the risk in a speech on Wednesday, stating Microsoft would legally challenge any government directive to cease European cloud operations, amid broader US–EU tensions.
Outlook
While shares remain down about 7% year-to-date—partly due to broader economic uncertainty and competitive pressures in AI—analysts view the quarter as a clear win. Microsoft’s ability to turn AI momentum into tangible revenue and margins, while avoiding some of the exposure seen in peers like Tesla and Apple, has helped it stand out in a sector crowded with hype but short on execution.
Emarketer’s Jeremy Goldman summed it up: “Yes, growth is slowing in places like LinkedIn… But Microsoft’s ability to turn AI enthusiasm into real revenue—and real margins—sets it apart.”