Microsoft forecast stronger-than-expected growth for its cloud-computing business, Azure, after posting impressive results in the latest quarter. The forecast calmed investor worries, lifting shares by 7% in after-hours trading. These results follow a similar trend from Google, easing concerns about a potential slowdown in AI demand. Some analysts had pointed to canceled data-center leases as a sign of excess capacity.
Investors were also concerned about the impact of U.S. tariffs. These tariffs have led businesses to curb spending. However, robust advertising sales at Meta Platforms show that these fears might be overstated. The rise in Microsoft’s shares has set it on track to add more than $200 billion to its value.
In the third quarter ending March 31, Azure revenue rose 33%. This exceeded the 29.7% growth expected by analysts, according to Visible Alpha. AI contributed 16 percentage points to this growth, up from 13 percentage points in the previous quarter. Microsoft also forecast cloud-computing revenue growth of 34% to 35% for the fiscal fourth quarter. Estimates range from $28.75 billion to $29.05 billion, well above analyst expectations.
Commercial bookings, which reflect new contracts for infrastructure and software, grew 18%. This was partly due to a new Azure contract with OpenAI, the creator of ChatGPT. Microsoft did not disclose the size of the deal or its impact on Azure’s growth. However, CFO Amy Hood explained that AI’s contribution met expectations, with “real outperformance” in the non-AI business.
These results came after some analysts had lowered expectations. This was based on reports suggesting Microsoft had ended some data center lease obligations. CEO Satya Nadella explained that Microsoft adjusts its data center plans regularly, but only recently have analysts started closely monitoring these moves.
“With skeptical numbers going in, they had room to beat expectations,” said Dan Morgan, senior portfolio manager at Synovus Trust, referring to tariff uncertainty.
Microsoft reported a profit of $3.46 per share for the quarter, exceeding the $3.22 per share estimate. Revenue rose 13% to $70.1 billion. The Intelligent Cloud unit, which includes Azure, contributed $26.8 billion.
Capital expenditures for the quarter rose 53% to $21.4 billion. The proportion of spending on long-lived assets, like data center buildings, fell. Instead, Microsoft focused more on shorter-lived assets, such as chips. Microsoft plans to continue growing capital expenditures in fiscal 2026. This will focus on AI-related infrastructure, including chips and data centers.
Microsoft is investing heavily in AI infrastructure and expanding its data-center footprint to meet growing demand. A slowdown in Big Tech’s AI spending would affect suppliers like Nvidia and the U.S. economy. J.P. Morgan analysts estimate that data-center spending could contribute between 10 and 20 basis points to U.S. economic growth in 2025-2026.
