Microsoft (MSFT) Q3 Earnings Beat Estimates Fueled by 40% Azure Growth

TLDR

• Microsoft surpassed Q3 earnings estimates, reporting an EPS of $4.27 compared to the projected $4.05, on total revenue of $82.9 billion
• Azure cloud revenue rose 40% year over year, outpacing the analyst consensus estimate of 37.9%
• Capital expenditures climbed 49% to $31.9 billion, while free cash flow dropped 22% to $15.8 billion
• M365 Copilot exceeded 20 million paid seats, an increase from the 15 million reported in the prior quarter
• Q4 Azure growth guidance is set at 39–40%, ahead of Wall Street’s 36.8% forecast

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(SeaPRwire) –   Microsoft posted a strong fiscal third quarter, exceeding expectations on both revenue and earnings per share. But the standout story was Azure.

$MSFT | Microsoft Q3 Earnings Highlights

Revenue: $82.9B (Consensus Est. $81.46B) ; Up 18% Year Over Year
EPS: $4.27 (Consensus Est. $4.05) ; Up 23% Year Over Year
Operating Income: $38.4B (Consensus Est. $36.9B) ; Up 20% Year Over Year
Azure & Other Cloud (ex-FX): +39% (Consensus Est. +38.2%)
Microsoft Cloud: $54.5B; Up 29%… pic.twitter.com/hSmZga7Tbg

— Wall St Engine (@wallstengine) April 29, 2026

Cloud revenue rose 40% year over year, beating the 37.9% forecast from Wall Street. This figure is particularly meaningful right now, as investors are closely monitoring Microsoft’s capacity to translate AI infrastructure spending into tangible growth.

The firm reported adjusted EPS of $4.27 on total revenue of $82.9 billion. Analysts had projected $4.05 per share and $81.4 billion in revenue, according to FactSet. Year-over-year revenue growth hit 18.3%.

Microsoft Corporation, MSFT

The company’s stock initially fell in after-hours trading before rebounding as guidance was shared during the earnings call.

Capital Expenditures Rise, Free Cash Flow Faces Pressure

Capital expenditures for the quarter totaled $31.9 billion, a 49% increase from the same period last year. Free cash flow fell 22% to $15.8 billion as Microsoft continues to invest heavily in AI and cloud infrastructure.

Company management noted that capital expenditures will rise further — Q4 spending is expected to exceed $40 billion. Full-year capex is now forecast at roughly $190 billion, significantly higher than the $160 billion Wall Street had previously projected.

Cantor Fitzgerald maintained its Overweight rating and $502 price target after the earnings release. The firm lifted its fiscal 2027 revenue forecasts thanks to strong Azure performance, though it reduced gross margin estimates by 140 basis points and lowered free cash flow projections amid increased spending.

DA Davidson kept its Buy rating intact but cut its price target to $550 from $650.

Per Cantor Fitzgerald, Azure is now nearing a $170 billion annual run rate. Capacity limitations and component shortages, including memory chips, remain a key issue that management highlighted during the earnings call.

Copilot Paid Seats Surpass 20 Million

M365 Copilot paid subscription seats surpassed 20 million, up from the 15 million reported in the previous quarter. GitHub Copilot usage was also identified as a factor behind higher-than-expected service costs, which weighed on gross margins.

CEO Satya Nadella referenced the company’s focus on “cloud and AI infrastructure” in the earnings announcement.

For Q4, Microsoft provided guidance for total revenue between $86.7 billion and $87.8 billion. The midpoint of this range falls just slightly below the $87.6 billion analyst consensus estimate.

MSFT stock has dropped roughly 12% year-to-date ahead of these earnings results. Some of this downward pressure stems from investor worries that newer AI models could reduce demand for the company’s traditional software offerings.

The stock held steady in after-hours trading following the release of the guidance.