Microsoft reported fiscal Q3 2026 earnings (ending March 31) with revenue of $82.89 billion, up 18% year-over-year and beating analyst expectations of $81.39 billion. Adjusted earnings per share came in at $4.27, above the $4.06 estimate. Operating profit was $38.4 billion, up 20%.
Azure and other cloud services revenue grew 40% (39% in constant currency), beating management's guidance of 37% to 38%. Over the past three quarters, Azure's growth rate had been steadily declining: 40% in the July-September quarter, 39% in October-December, and then guidance dropped to 37-38%. The market feared a peak — after the previous quarter's earnings in January, Microsoft lost $357 billion in market cap in a single day. But this quarter's actual growth rebounded to 40%, proving the earlier deceleration was due to data center capacity constraints, not weakening customer demand — a dynamic that's squeezing smaller AI startups as cloud providers tighten GPU supply.
AI business annualized revenue reached $37 billion, up 123% year-over-year. Paid Microsoft 365 Copilot seats surpassed 20 million, up from 15 million in January. CEO Satya Nadella said Copilot's weekly active usage is now on par with Outlook. Total Microsoft Cloud revenue was $54.5 billion, up 29%. Commercial remaining performance obligations — contracts signed but not yet recognized as revenue — hit $627 billion, nearly doubling year-over-year.
Capital expenditures (including finance leases) were $31.9 billion, up 49% year-over-year but about $3.4 billion shy of the $35.29 billion analysts expected. CFO Amy Hood raised the full-year capex forecast to $190 billion, with roughly $25 billion of that attributed to component price increases — far above the $154.6 billion analysts had previously anticipated. Gross margin fell to 67.6%, the lowest since 2022, largely due to rising data center depreciation costs.
The same week, Microsoft announced a restructured partnership with OpenAI — a move that comes as OpenAI models are coming to AWS Bedrock within weeks. It eliminated revenue sharing with OpenAI, retained Azure's priority position as OpenAI's primary cloud platform, and secured a non-exclusive license to OpenAI's models through 2032. On the earnings call, Nadella said Microsoft has royalty-free access to OpenAI's frontier models, adding, "We fully intend to take advantage of that."
For the next quarter, Azure guidance calls for constant-currency growth of 39% to 40%, well above the 37% analysts expected. Revenue guidance is $86.7 billion to $87.8 billion, with the midpoint roughly flat compared to the $87.53 billion consensus.