- EPS 4.27 (exp. 4.05)
- Revenue of $82.89bn beat the $81.46bn consensus estimate, implying approximately 18% year-on-year growth from $70.06bn in Q3 FY2025
- EPS of $4.27 exceeded the $4.03 estimate; operating income of $38.40bn cleared the $36.9bn forecast
- Azure and other cloud services grew 39% in constant currency, beating management’s own 37-38% guidance and reversing a multi-quarter deceleration trend
- Total Cloud revenue of $54.5bn beat the $53.78bn estimate; Microsoft 365 Commercial Cloud grew 19%, Consumer Cloud grew 33%
- Capex including finance leases of $31.9bn came in approximately $3.4bn below the $35.29bn consensus estimate, easing free cash flow pressure concerns
- Dynamics 365 grew 22% and LinkedIn 12%; Xbox content and services fell 5% and Windows OEM and Devices declined 2%
- Microsoft announced a restructured OpenAI partnership on April 27, eliminating outbound revenue-share payments to OpenAI while retaining Azure priority and a non-exclusive model licence through 2032
- The results arrive after Microsoft’s worst single-day market cap loss in its history following Q2 earnings, when $357bn was erased despite a headline revenue beat
Microsoft delivered a broad earnings beat in its fiscal third quarter of 2026, posting revenue of $82.89bn against the $81.46bn consensus and EPS of $4.27 versus the $4.03 estimate, at the same time producing a significant undershoot on capital expenditure that analysts had flagged as the single most important number in the report. Capex including finance leases came in at $31.9bn, roughly $3.4bn below the $35.29bn estimate, providing the clearest signal yet that the company’s AI infrastructure buildout is moderating toward a more predictable pace after quarters of escalation that rattled investor confidence.
The Azure result is the second headline that matters. Azure and other cloud services grew 39% in constant currency, a point above the top of the 37-38% guidance range that management had set on the Q2 call in January. The beat reverses a multi-quarter trend of sequential deceleration, from 40% constant currency in Q1 FY2026, to 38% in Q2, with guidance for further slowdown in Q3 that has now proven too conservative. Management had repeatedly argued that the deceleration was supply-constrained rather than demand-limited, pointing to CFO Amy Hood’s disclosure that Azure could have grown above 40% in earlier quarters had the company allocated all newly commissioned GPU capacity to the cloud segment rather than splitting it across Copilot, GitHub Copilot and internal workloads. The Q3 print validates that framing and should put to rest the concern that Azure growth is entering a structurally lower range.
Total Cloud revenue of $54.5bn against a $53.78bn estimate continues Microsoft’s trajectory of crossing new thresholds in its cloud business, which crossed $51.5bn for the first time in Q2. Microsoft 365 Commercial Cloud revenue growth of 19% and Consumer Cloud growth of 33% are the clearest signs that Copilot monetisation is beginning to flow through to revenue per user, a metric the market had identified as the most important indicator of whether the AI product cycle was generating genuine incremental value or simply spreading licence costs more thinly. Dynamics 365 at 22% growth outpaced the prior quarter’s 19% and points to accelerating AI adoption within Microsoft’s business applications stack.
LinkedIn at 12% growth is steady, while Xbox content and services at -5% and Windows OEM and devices at -2% reflect ongoing softness in consumer-facing hardware and gaming that has been a feature of Microsoft’s results for several quarters. Neither metric is likely to weigh on market reaction given the degree to which the investment thesis has shifted toward Cloud and AI monetisation.
The context for this report is unusually charged. Microsoft’s stock had fallen more than 20% from its October 2025 highs by the time of today’s print, including a single-session loss of approximately $357bn in market value following Q2 results in January, when investors looked past a headline revenue beat and focused instead on $37.5bn in quarterly capex, slower-than-expected Copilot adoption and concerns about the economic structure of the OpenAI relationship. The restructuring of that partnership, announced two days before this report, eliminates Microsoft’s outbound revenue-share obligations to OpenAI while preserving Azure as OpenAI’s primary cloud platform and extending the IP licence through 2032 on a non-exclusive basis. That arrangement reduces margin drag and removes a specific risk that had been cited repeatedly by analysts as a reason to question the quality of the commercial remaining performance obligation backlog, which stood at $625bn at the end of Q2.
This article was written by Eamonn Sheridan at investinglive.com.
