Microsoft's full-year capital expenditures soar to $190 billion, with AI and Azure helping the company's revenue surpass expectations

According to Beating Monitoring, Microsoft announced its FY26 Q3 (ending March 31) financial results, with revenue of $82.89 billion, up 18% year-over-year, surpassing analyst expectations of $81.39 billion. Adjusted earnings per share were $4.27, higher than the expected $4.06. Operating profit was $38.4 billion, up 20% year-over-year.

Azure and other cloud service revenues grew 40% (39% at constant exchange rates), exceeding the management’s previous guidance of 37% to 38%. Previously, Azure’s growth slowed from 40% in Q1 to 39% in Q2, and management provided an even lower guidance for Q3, causing market concerns that deceleration might become a trend. After the Q2 earnings, Microsoft’s market value evaporated by $357 billion in a single day. This time, returning to 40% directly reversed the two consecutive quarters of slowdown narrative.

AI business annualized revenue reached $37 billion, up 123% year-over-year. Microsoft 365 Copilot paid seats surpassed 20 million, up from 15 million in January. CEO Nadella stated that Copilot’s weekly active users are now on par with Outlook. Microsoft’s total cloud revenue was $54.5 billion, up 29%. Commercial remaining performance obligations (contracts signed but not yet recognized as revenue) reached $627 billion, nearly doubling.

Capital expenditures (including finance leases) were $31.9 billion, up 49% year-over-year, but below analyst expectations of approximately $35.2 billion, which was about $3.4 billion less. CFO Amy Hood raised the full-year capital expenditure forecast to $190 billion, with about $25 billion coming from component price increases, far exceeding the previous analyst estimate of $154.6 billion. Gross margin declined to 67.6%, the lowest since 2022, mainly due to rising depreciation costs for data centers.

Microsoft also announced a restructuring and a partnership with OpenAI: canceling revenue sharing with OpenAI, maintaining Azure as OpenAI’s primary cloud platform, and granting a non-exclusive model license until 2032. Nadella stated during the call that Microsoft has royalty-free access to OpenAI’s cutting-edge models, “We fully intend to leverage this.”

Q4 revenue guidance is between $86.7 billion and $87.8 billion, with a midpoint slightly below the expected $87.53 billion. Azure guidance is 39% to 40% at constant exchange rates, higher than the analyst expectation of 37%.