Core Viewpoint - Microsoft's Q3 FY2025 earnings report showed accelerated revenue growth and continued profit margin expansion, contrary to market expectations of a slowdown [1][9][10] Azure Business Performance - Azure revenue grew by 33% year-over-year, with a constant currency growth rate of 35%, exceeding market expectations of flat growth [1][18] - AI demand contributed 16 percentage points to Azure's growth, marking the largest quarterly increase since Q2 FY2024 [2][21] - Traditional non-AI business demand was stronger than anticipated, with a growth rate of 17%, surpassing the expected 14.7% [2][21] Microsoft 365 Performance - Microsoft 365 Commercial Cloud revenue increased by 12%, with a constant currency growth of 15%, primarily affected by currency headwinds [3][23] - Subscription seat count for commercial M365 grew by 7%, driven by small and medium enterprises [3][26] - Copilot's contribution to revenue growth was less significant than expected, indicating it has not yet become a major revenue driver [3][28] Capital Expenditure (Capex) - Actual Capex for the quarter was $21.4 billion, slightly down from the previous quarter, reflecting a more cautious investment approach [4][41] - Management indicated that Capex would increase in Q4, maintaining guidance for continued growth in FY2026, albeit at a slower rate [4][41] Leading and Lagging Indicators - New enterprise contract signings grew by only 18%, a significant drop from the previous quarter's 67% growth, suggesting potential caution in IT spending [5][43] - The backlog of unfulfilled contracts grew by 34% year-over-year, but the portion expected to be recognized within 12 months only grew by 17% [5][43] Profitability and Cost Management - Gross margin for the quarter was 68.7%, slightly down from the previous year but better than expected [6][46] - Total expenses grew by only 2.4%, indicating effective cost control that helped maintain profit margins despite high Capex [6][47] - Operating profit increased by 16% year-over-year, outpacing revenue growth [6][48] Future Guidance - Guidance for Q4 indicates revenue growth of 13.9% and operating profit growth of 14.4%, suggesting continued positive momentum [7][46] - Azure's growth is expected to remain between 34% and 35%, while commercial M365 growth is projected at 14%, indicating potential challenges for Copilot [7][46]