Microsoft's Q3 2025 Earnings: AI and Cloud Growth Amidst Economic Uncertainty

Microsoft argues pausing datacenter builds is utterly normal

Sees economic strife as chance to sell even more stuff than its $70bn Q3 haul Microsoft's capital expenditure was slightly lower than forecast, in part due to "normal variability from the timing of delivery of data center leases" that the company was at pains to argue are not in any way bad news. The company raked in $70.1 billion for the third quarter of FY 2025, a 13 percent year-over jump. Net income of $25.8 billion represented an 18 percent jump. Microsoft Cloud revenue rose $42.4 billion, up 20 percent. $21.4 billion went out the door on capital expenditure, We've always been making adjustments to what pace we build, all through the last 10, 15 years Microsoft is all-in on AI but doesn't enumerate revenue generated by the tech, which has led to speculation that the enormous sums Microsoft intends to spend on AI infrastructure may not quickly deliver a return on investment. On the company's earnings call, CEO Satya Nadella opened his remarks with the declaration that "Cloud and AI are the essential inputs for every business to expand output, reduce costs and accelerate growth" and then told investors that the last quarter saw Microsoft open datacenters in ten countries across four continents. Microsoft, and other hyperscalers, have attracted attention after slowing datacenter builds - another event seen as perhaps indicating AI might not quickly pay for itself. Later in the call, Nadella tried to quash the notion that revisions to datacenter builds are an indicator of anything significant. "The reality is we've always been making adjustments to build, lease, what pace we build all through the last 10, 15 years," he said, before adding "It's just that you all pay a lot more attention to what we do quarter-over-quarter nowadays." "Having said that, the key thing for us is to have our bills and lease be positioned for the workload growth of the future," he added. "You don't want to be upside down on having one big data center in one region when you have a global demand footprint. You don't want to be upside down when the shape of demand changes because," he added, especially given that training AI models needs different resources than inferencing workloads. The CEO said the combination of Moore's Law, improvements in software design, and changes to model architecture, mean hyperscale AI operators need to change their plans. "We just want to make sure we're accounting for the latest and greatest sort of information we have on all of that," Nadella said. "And that's what you see reflected, and I feel very, very good about the pace [of datacenter and AI buildout]." CFO Amy Hood weighed in an observation that Microsoft's getting better at provisioning AI datacenters and is sometimes making capacity available earlier than planned. She also told investors "margins on the AI side of the business are better than they were at this point by far than when we went through the ... server to cloud transition." That shift also saw Microsoft spend up big to build Azure and has worked out just fine as revenue for "Azure and other cloud services" grew 33 percent year over year. Hood said future commitments to use Microsoft's cloud rose 34 percent to $315 billion. Forty percent of that will be paid in the next 12 months. The company's "Server products and cloud services" category grew revenue by 22 percent, but on-prem server products saw revenue dip six percent and was forecast to do it again in the current quarter. Hood said the dip was "slightly below expectations driven by renewals with lower in-period revenue recognition from the mix of contracts" and a reflection of customers moving to the cloud. Indeed, Nadella mentioned "accelerating demand for cloud migrations" and named Abercrombie & Fitch, Coca-Cola, and ServiceNow as companies that have moved workloads into Azure. It's 2025 so any earnings call will canvas the USA's rapidly evolving tariff policy. Hood discussed them in the context of a three percent jump in revenue from Windows sales to OEMs and devices revenue, which she said was "ahead of expectations as tariffs uncertainty through the quarter resulted in inventory levels that remained elevated." Or in other words, PC-makers imported boatloads of stuff in recent weeks to get them into the US before tariffs translate into price rises for consumers, leaving warehouses full of un-tariffed kit waiting to be bought. During the Q&A section of the earnings call, Nadella was asked how an economic recession - which some predict the shakeup of world trade will cause - would impact Microsoft. Nadella said Microsoft would tell customers its wares will help them to navigate "any turbulence in the macro". "I think if you sort of buy into the argument that software is the most malleable resource we have to fight any type of inflationary pressure or any type of growth pressure where you need to do more with less," he said. "I think we can be super helpful in that. And so if anything, we would probably have more of that mindset is how do we make sure we are helping our customers. And then, of course, we'll look to share gains." ®

Microsoft Q3 2025 Earnings: AI, Cloud Sales Grow Despite Global Economic Uncertainty, Partner Improvements Continue

'We still have some work to do in our scale motions,' Microsoft CFO Amy Hood said. Economic uncertainty due to global tariffs didn't spoil gains by Microsoft in the artificial intelligence market, with the vendor reporting growth across a variety of AI products-but the vendor appeared to still grapple with work done alongside solution providers. Amy Hood, CFO for the Redmond, Wash.-based AI, cloud and productivity applications giant, told analysts on Microsoft's quarterly earnings call Wednesday that "we still have some work to do in our scale motions"-which Hood previously described as customers reached through partners and indirect sales. Hood said "things were a little better" during the vendor's third fiscal quarter, ended March 31, compared to the prior one. During the call, she said Microsoft's "results exceeded expectations driven by focused execution from our sales and partner teams." "We're encouraged by our progress," she said. "We're excited to stay focused on that as, of course, we work through the final quarter of our fiscal year." Microsoft saw "good, consistent work on (cloud) migrations" and "good execution by the sales and partner teams" as part of its third quarter successes. [RELATED: Global Tariffs Cause Indecision, Caution In The Channel: Research] Should the economy have a negative impact on customers, Microsoft CEO Satya Nadella said the vendor can rely on its efficiencies in cloud, differentiated software-as-a-service (SaaS) applications and infrastructure to help them. "If you sort of buy into the argument that software is the most malleable resource we have to fight any type of inflationary pressure or any type of growth pressure where you need to do more with less, I think we can be super helpful with that," Nadella said. Hood called out Microsoft's Windows, original equipment manufacturer (OEM) and devices revenue as performing "ahead of expectations," with a 3 percent increase year over year "as tariffs uncertainty through the quarter resulted in inventory levels that remained elevated." When asked on the call about pull-in of non-AI Azure revenue by Azure AI, Hood said that "it's getting harder and harder to separate what an AI workload is from a non-AI workload" in Azure. "Digital natives build workloads," she said. "They do AI work. They do non-AI work. Do they tend to do that work in the same cloud? Lots of times. Sometimes, is it all in the same place? Not all the time. But that relationship gets stronger and stronger as people pivot to more of AI-heavy workloads. ... We'll continue to see that as AI workloads continue to get built and experimented with and proofs of concept get expanded." Hood said that Microsoft was "able to deliver supply early to a number of customers" in the AI side of its Azure cloud business, although the majority of Azure's out performance in the quarter was on the non-AI side of the business. CEO Nadella gave solution providers plenty of talking points around the growing use of a variety of the vendor's products in AI, data and cloud. Among the growth in AI products Nadella shared: Nadella called Azure "the cloud of choice for customers' mission-critical VMware, SAP and Oracle workloads, with more regional availability than any other hyperscaler." Nadella did not specifically share whether Microsoft is seeing heightened migration activity from VMware customers to Azure products to avoid price changes by the legacy virtualization vendor-a trend multiple Microsoft solution providers and ISV partners have shared with CRN. He said "classic" cloud migration to products such as Windows Server has "good, steady-state progress," with data center cloud migrations "because of the efficiency the cloud provides." Microsoft saw "healthy" core compute consumption by cloud-native players in the quarter and looking ahead, he said. For watchers of quantum computing as the next technology revolution, Nadella said the vendor is "putting our quantum stack on machines from our partners" and "making real progress on a path to a utility-scale quantum computer with the introduction of Majorana 1," Microsoft's quantum chip unveiled in February. Microsoft's leaders told analysts on the call that the vendor is full speed ahead on data center investments to meet demand in AI and cloud, making sure they only build to meet future workload growth. "The reality is, we've always been making adjustments to build, lease, what pace we build (data centers), all through the last 10-to-15 years," Nadella told analysts on the call. "It's just that you all pay a lot more attention to what we do quarter over quarter nowadays." During the quarter, Microsoft opened data centers in 10 countries across four continents, Nadella said. Hood said that data center build-outs can have lead times of five-to-seven years and that Microsoft considers capital expenditures carefully and the vendor still has more demand compared to capacity. Microsoft's capital spending to catch up in the cloud market is paying off in AI, Hood said. "One thing that's a little different this time is just the pace," she said. "Pace in terms of the efficiency side, but also pace in terms of the build out, so it can mask some of the progress. But we are working hard across all of the teams-hardware, software, even the build teams-to get things in place as quickly as possible." Microsoft's AI margins "are better than they were at this point, by far, than when we went through the same transition in the server-to-cloud transition," she said. Microsoft reported $70.1 billion in revenue for the quarter, up 15 percent year over year ignoring foreign exchange. The vendor's operating income of $32 billion marked a 19 percent increase year over year. Net income of $25.8 billion was a 19 percent increase. Microsoft Cloud revenue was $42.4 billion, up 22 percent year over year ignoring foreign exchange, according to the vendor. Going by segment, Microsoft's productivity and business processes (PBP) business-which includes Microsoft 365, LinkedIn and Dynamics-brought in $29.9 billion during the quarter. That marks a 13 percent increase year over year ignoring foreign exchange. M365 Commercial products and cloud services revenue grew 14 percent year over year. M365 Commercial cloud in particular grew 15 percent. Dynamics products and cloud services revenue grew 13 percent year over year. Dynamics 365 revenue grew 18 percent. In Microsoft's "intelligent cloud" (IC) segment-which includes Azure-the vendor saw $26.8 billion in revenue, a growth of 22 percent year over year ignoring foreign exchange. Azure and other cloud services revenue grew 35 percent year over year. Server procuts and cloud services revenue grew 24 percent. Microsoft's final segment, "more personal computing" (MPC)--which includes devices, Xbox, search and news advertising-grew 7 percent year over year, hitting $13.4 billion. Windows original equipment manufacturer (OEM) and devices revenue grew 3 percent. Microsoft stock traded at about $420 a share Wednesday after market close, up about 7 percent.