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By Brian Nelson, CFA
On April 29, Microsoft (MSFT) reported better than expected fiscal third-quarter results with revenue and GAAP earnings per share coming in higher than the consensus forecasts. Quarterly revenue came in at $82.9 billion, increasing 18% (15% in constant currency) year-over-year, and the software giant leveraged that growth into a 20% increase (16% in constant currency) in operating income for the period. Both net income and diluted earnings per share advanced 20% on a GAAP basis and 18% on a constant currency non-GAAP basis.
Management had the following to say about the results:
We are focused on delivering cloud and AI infrastructure and solutions that empower every business to eval-max their outcomes in the agentic computing era. “Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year.
We delivered results that exceeded expectations across revenue, operating income, and earnings per share, reflecting strong execution and growing demand for the Microsoft Cloud.
Microsoft Cloud revenue was $54.5 billion and increased 29% (25% in constant currency), and commercial remaining performance obligations increased 99%, to $627 billion. Revenue in Productivity and Business Processes was $35 billion and increased 17% (13% in constant currency, while revenue in Intelligent Cloud was $34.7 billion, increasing 30% (28% in constant currency). Azure and other cloud services revenue increased 40% (39% in constant currency). Revenue in More Personal Computing decreased 1% (down 3% in constant currency).
Microsoft returned $10.2 billion to shareholders in the form of dividends and share repurchases in the third quarter of fiscal year 2026. Looking to the fiscal fourth quarter, the firm said it expects Azure’s growth to be between 39% and 40% in constant currency, above the consensus estimate of 37%. Microsoft’s Cloud gross margin is expected to be roughly 64%, down year-over-year, driven by continued investments in AI and increased GitHub Copilot usage. Microsoft has been caught up in the market’s concern over software companies being displaced by AI, but we continue to like shares. The company yields 0.9% at the time of this writing.
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Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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