Q3 Fiscal Year 2025 | Quarter Ended March 31, 2025
Microsoft Corporation reported strong financial results for the third quarter of fiscal year 2025, ended March 31, 2025. The company demonstrated robust growth across all business segments, with particularly strong performance in cloud services and artificial intelligence offerings.
Total revenue reached $70.1 billion, representing a 13% increase year-over-year (15% in constant currency). Net income grew by 18% to $25.8 billion, with diluted earnings per share (EPS) also increasing by 18% to $3.46.
The company's performance exceeded analyst expectations, with actual revenue surpassing forecasts by $1.7 billion and EPS beating estimates by $0.24. This strong performance was primarily driven by continued momentum in Microsoft Cloud, which generated $42.4 billion in revenue, up 20% year-over-year.
The Intelligent Cloud segment generated $26.8 billion in revenue, representing a 21% increase year-over-year. Azure and other cloud services saw revenue growth of 33%, with AI services contributing 16 percentage points to this growth.
Server products and cloud services revenue increased driven by Azure and other cloud services. Azure and other cloud services revenue grew 33% (35% in constant currency) driven by growth in consumption-based services, particularly in AI services.
Revenue in the Productivity and Business Processes segment reached $29.9 billion, a 10% increase year-over-year. Microsoft 365 Commercial products and cloud services revenue increased 11% (14% in constant currency), driven by Microsoft 365 Commercial cloud revenue growth of 12% (15% in constant currency).
LinkedIn revenue grew by 7% (8% in constant currency), while Dynamics products and cloud services revenue increased by 11% (13% in constant currency), with Dynamics 365 revenue growth of 16% (18% in constant currency).
Windows OEM and devices revenue increased by 3% year-over-year, showing resilience in the PC market. Xbox content and services revenue grew by 8% (9% in constant currency), reflecting continued strength in the gaming segment.
Search and news advertising revenue, excluding traffic acquisition costs, increased by 21% (23% in constant currency), demonstrating strong performance in the digital advertising space.
Despite concerns about potential impacts from tariffs and global economic shifts, the More Personal Computing segment showed solid performance across its key product lines.
Microsoft Cloud revenue, which includes Azure plus other cloud services and commercial software, reached $42.4 billion, representing a 20% increase year-over-year (22% in constant currency).
Microsoft Cloud gross margin percentage decreased to 69%, primarily driven by the impact of scaling the company's AI infrastructure. This reflects Microsoft's significant investments in building out its AI capabilities to support growing demand.
AI services contributed 16 percentage points to Azure's overall growth of 33%, highlighting the significant impact of Microsoft's AI investments on its cloud business. The company's strategic focus on AI is driving substantial revenue growth across its cloud portfolio.
Microsoft continues to make substantial investments in AI infrastructure, with a commitment of $80 billion in capital expenditure for the current fiscal year. These investments are primarily focused on expanding data center capacity to support growing demand for AI and cloud services.
The company's Microsoft 365 Copilot has seen strong adoption, with over 70% of Fortune 500 companies now using the AI-powered productivity tool. This demonstrates the successful integration of AI capabilities across Microsoft's product portfolio.
Despite some capacity constraints expected beyond June, Microsoft is working to balance supply and demand, with increased investments to address potential tightness as they exit the fiscal year. The company's leadership emphasized the relationship between AI workloads and core compute and storage, noting that the next big platform shift builds on existing infrastructure.
Microsoft stock surged 8.5% to $428.93 following the Q3 earnings announcement, reflecting investor confidence in the company's strong performance and future outlook.
The stock is up 2.4% year-to-date in 2025, with a 52-week trading range of $344.79 to $468.35. Analysts maintain a "Strong Buy" rating with an average price target of $508.07, suggesting a potential upside of 16.26%.
Analysts have responded positively to Microsoft's Q3 results, with many highlighting the company's strong position in cloud and AI markets. The consensus view is that Microsoft is well-positioned to capitalize on the growing demand for AI services.
While some analysts had lowered their price targets amid concerns about potential tariff impacts, most maintained "buy" ratings, citing Microsoft's AI potential and strong cloud growth as key drivers for future performance.
The market responded enthusiastically to Microsoft's earnings beat, with the stock jumping 8.5% in after-hours trading. This positive reaction was driven by several factors, including:
Looking ahead, Microsoft anticipates continued growth in its Intelligent Cloud segment, projecting revenue between $28.75 billion and $29.05 billion in the next quarter. This outlook is driven by sustained demand for AI and cloud services.
The company remains committed to its $80 billion capital expenditure plan for AI and cloud infrastructure, with over half of these investments focused on the U.S. market. These investments are expected to support the growing demand for AI services and ensure Microsoft maintains its competitive position in the cloud market.
Microsoft's leadership acknowledged potential capacity constraints beyond June but emphasized their efforts to balance supply and demand. The company is working to address these constraints through increased investments in infrastructure and optimization of existing resources.
Microsoft is well-positioned to capitalize on the growing demand for AI services, with its AI offerings already contributing significantly to Azure's growth. The company's Microsoft 365 Copilot has seen strong adoption among enterprise customers, with over 70% of Fortune 500 companies now using the tool.
The company's leadership highlighted the relationship between AI workloads and core compute and storage, noting that the next big platform shift builds on existing infrastructure. This approach allows Microsoft to leverage its established cloud infrastructure while expanding its AI capabilities.
Microsoft faces potential challenges from geopolitical and economic shifts, including the impact of tariffs on global trade. However, CEO Satya Nadella has expressed confidence in the company's ability to adapt to these changes, stating that "whatever are the geopolitical or economic shifts, we'll adjust to it."
The company is also addressing potential capacity constraints in its AI infrastructure through increased investments and optimization of existing resources. These efforts are expected to help Microsoft meet the growing demand for AI services while maintaining its competitive position in the market.