Microsoft is set to report their Q3 2025 earnings today after the closing bell, with analysts optimistic about the company’s performance as a whole.
Despite seeing its stock decline 7% YTD, Microsoft has managed to outperform most of the Magnificent 7 and 50 other stocks in the S&P 500.
Earnings Outlook and Estimates
- Earnings Per Share: $3.22
- Revenue: $68.43 Billion
Microsoft’s previous quarterly earnings have been mixed, with revenue fluctuating between missing and beating estimates. Earnings however have consistently beaten estimates, missing only once in 12 quarters. ⁽¹⁾
With a forecasted 18% increase in revenue to $26.13 billion, the Intelligent Cloud segment supported by Azure is expected to lead.
Azure’s expansion, especially in AI services, remains a key component of Microsoft’s success. In its most recent quarter, AI-related revenue increased 157% year over year.
However, weaker sales execution in Q3 could pose problems for Azure’s non-AI offerings. ⁽²⁾
Analysts from Wedbush and Goldman Sachs have maintained their BUY rating with a price target between $450 and $475, as they noted a “transformational opportunity” for Microsoft in its AI monetization through cloud computing and its ability to capitalize on AI use cases moving to the application layer. ⁽³⁾
Key Factors to Watch in Microsoft’s Earnings
- Azure and cloud segment performances
- AI integration
- Productivity and business segments
- More personal computing and gaming segments
- CAPEX and future guidance
- AI and cloud performances
Microsoft’s strong presence in artificial intelligence and cloud computing remains a key driver of revenue. The Intelligent Cloud segment’s growth has been driven by Azure’s 31% YoY expansion due to high demand in AI and cloud migrations.
Microsoft’s partnership with OpenAI is valued at $300 billion after a recent funding of $40 billion, which is expected to support the Azure segment with OpenAI’s resources prioritized.
The Productivity & Business Processes segment, led by Microsoft 365 Commercial cloud revenue, is expected to grow by 15%, supported by tools like M365 Copilot. ⁽⁴⁾
Challenges and Capital Allocation
There is one key issue for Microsoft though. Many of its other sectors are expected to slow down. Revenue from the More Personal Computing category is expected to remain flat in Q3, while growth in search and advertising is expected to slow. ⁽⁵⁾
Following a 75% increase in Q2, commercial bookings, a key factor for future revenue, are expected to remain steady. Due to investments in AI infrastructure, operating expenses are expected to increase to $16.45 billion. ⁽⁶⁾
Capital expenditure (CAPEX) also remains a key talking point , with Q2 spending at $15.8 billion, up 62% from last year. Q3 and Q4 could see similar numbers. There are reports that indicate Microsoft might slow down its project spending in FY26, which could ease pressure on free cash flow.
Investors and traders will be closely monitoring its CAPEX report as Microsoft plans a $64 billion buyback and a $25 billion annual dividend. ⁽⁷⁾
Macro Uncertainties Caused by Tariffs
Microsoft may be impacted by President Trump’s tariffs on China which could pose risks to its international operations despite a 90-day pause to other nations. Analysts remain optimistic about Microsoft’s ability to boost AI and cloud computing to drive growth.
Bottom Line
With Azure and Microsoft 365 driving sales and profit growth, Microsoft’s dominance in AI and cloud computing will be on show in its Q3 earnings release.
Despite challenges, Microsoft’s business model and strategic investments could help maintain its leading position in the tech sector. Traders will be focused on how Microsoft’s actual numbers turn out in relation to forecasts. Markets will also be tuned in to Microsoft’s future guidance for clues on its resilience and the broader economic trends in play.
