Microsoft (MSFT) reported $81.27 billion in revenue for the quarter ended December 2025, representing a year-over-year increase of 16.7%. EPS of $4.14 for the same period compares to $3.23 a year ago.The reported revenue represents a surprise of +1.3% over the Zacks Consensus Estimate of $80.23 billion. With the consensus EPS estimate being $3.88, the EPS surprise was +6.84%.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to Wall Stree ...

Core Insights - Wall Street is generally optimistic about AI developments despite increased spending by hyperscalers [1][5] - Major tech companies like Microsoft, Google, and Amazon reported strong cloud business performance [1][4] Company Performance - Amazon's AWS segment growth reaccelerated to 20.2%, the highest since 2022 [3] - Microsoft's cloud revenue increased by 26% to $49.1 billion, while Google's cloud revenue rose 34% year over year to $15.1 billion [4] - Analysts noted robust growth in cloud services, particularly those offering AI infrastructure [5] Financial Concerns - Companies utilizing cloud services, such as OpenAI, are struggling to generate profits despite significant spending [2][6] - OpenAI is projected to spend $1.4 trillion while currently generating only $13 billion in revenue, raising questions about its financial sustainability [7]

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]