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Shares of Microsoft (MSFT) surged 7.6% on the first trading day of May after the tech giant reported strong earnings and guidance that lifted investor confidence.
For the fiscal third quarter ending March 31, the $3 trillion company reported earnings of $3.46 per share, up 18% from a year ago and above analysts’ estimate of $3.22. Revenue increased by 13% year over year to $70.07 billion, topping Wall Street’s forecast of $68.42 billion.
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The company’s closely watched Azure cloud business revenues grew 33% year over year, compared with 31% growth last quarter.
"It was a record quarter driven by continued strength of Microsoft Cloud," said Satya Nadella, Microsoft's CEO. "Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth."
Microsoft’s earnings results helped ease investor concerns about tech-sector growth amid market uncertainties caused by President Donald Trump's tariff plans. The stock lost more than 10% over the three months ended April 30.
Microsoft expects upcoming AI capacity constraints
Microsoft has shifted its focus from PCs to the cloud, with Azure now its key growth engine, ranking second in the public cloud market. Other major products include Windows, Office 365, Xbox, and Surface PCs.
Looking ahead, Microsoft anticipates continued growth in cloud and AI services, with Azure growth projected at 34–35%, despite potential "AI capacity constraints beyond June," according to Amy Hood, Microsoft’s CFO.
Related: Analyst unveils surprising Microsoft stock price target after tariff slump
“While we continue to bring data center capacity online as planned, demand is growing a bit faster,” Hood explained.
In other commercial segments, Microsoft expects Q4 demand to remain stable across LinkedIn, gaming, and search.
Search and advertising revenue is expected to rise in the mid to high teens, helped by higher search volume and Bing’s market share gains. Meanwhile, Windows OEM and device revenue will likely decline.
The company reiterated that capital expenditures will increase in the new fiscal year due to ongoing investments in cloud and AI, though at a slower rate than the current fiscal year.
Before this earnings report, Microsoft had begun scaling back parts of its AI expansion. In an April LinkedIn post, Noelle Walsh, president of Microsoft Cloud Operations and Innovation, said the company was "slowing or pausing some early-stage projects."
Analysts raise Microsoft stock price target after earnings
Several analysts have raised their price target for Microsoft stock after the financial results.