Microsoft reports strong Q3 results despite uncertainity as Azure cloud revenue jumps 33%

Microsoft reported growth in both revenue and bottomline for the quarter ended March 2025. The Windows maker saw a 22% increase in its server products and cloud services revenue driven by Azure.

The tech firm’s topline increased 13% year-on-year (YoY) to $70.1 billion in Q3 FY25. Meanwhile, its net profit for the quarter surged to $25.8 billion up by 18% YoY.

Microsoft's fiscal year runs from July 1 to June 30.

“We delivered a strong quarter with Microsoft Cloud revenue of $42.4 billion, up 20% year-over-year driven by continued demand for our differentiated offerings,” said Amy Hood, Executive Vice President and Chief Financial Officer of Microsoft, in an earnings call.

The leading cloud service provider foresees continued growth in the segment for the next quarter as well.

“In Azure, we expect Q4 revenue growth to be between 34% and 35% in constant currency driven by strong demand for our portfolio of services. In our non-AI services, we expect focused execution to continue driving healthy growth,” said Hood.

“In our AI services, while we continue to bring data centre capacity online as planned, demand is growing a bit faster. Therefore, we now expect to have some AI capacity constraints beyond June,” she added.

The company saw a capex of $21.4 billion, which was “slightly lower than expected due to normal variability from the timing of delivery of data centre leases,” said Hood. It expects its Q4 capital expenditures to increase on a sequential basis.

Growth across segments

Microsoft categorises its revenue into three segments: productivity and business processes, intelligent cloud, and personal computing.

Growing ahead of expectation, its revenue from productivity and business processes stood at $29.9 billion, with a growth of 10%, the company announced. This was driven by Microsoft 365 commercial products, Microsoft 365 for Home, and LinkedIn, which saw a 7% increase, its growth cooling a little from 9% in the previous quarter. Time spent watching videos on the platform rose 36%, and engagement through comments increased 32% YoY.

The tech firm’s revenue in intelligent cloud, which also includes the Azure cloud computing platform, stood at $26.8 billion, increasing 21% YoY.

The company’s revenue in more personal computing—which includes Windows OEM, Devices, Xbox content and services, search, and news advertising—was $13.4 billion, increasing 6% YoY.

Meanwhile, PC Game Pass revenue increased over 45% YoY, the company said.

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AI and Infrastructure

Microsoft Chairman and Chief Executive Officer Satya Nadella said in the earnings call, “Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth.”

The tech giant continues to expand its data centre capacity, with a presence in 10 countries across four continents. Nadella added that model capabilities are doubling in performance every six months owing to multiple, compounding scaling laws.

In its supply chain, the company has reduced dock-to-lead times for new GPUs by nearly 20%, and increased AI performance by nearly 30% ISO power across its blended fleet.

“We are also excited about the next frontier in cloud systems with quantum. In addition to putting our quantum stack on machines from our partners, we are also making real progress on a path to a utility scale quantum computer with the introduction of Majorana-1,” said Nadella.

Within four months, the company has seen more than 10,000 organisations using its new Agent Service to build, deploy, and scale their agents.

Outlook

The company said that demand signals across its commercial businesses, and LinkedIn, Gaming, and Search have remained consistent and it expects the trends to continue in Q4.

Additionally, Microsoft expects its elevated inventory levels from Q3 to come down in the next quarter.

“With the weakening of the US dollar in April, we now expect FX to increase total revenue growth by one point. Within the segments, we expect FX to increase revenue growth by one point in Productivity and Business Processes and less than one point in Intelligent Cloud and More Personal Computing. We expect FX to increase COGS and operating expense growth by less than one point,” said Hood.

The firm expects Microsoft Cloud's gross margin percentage to be around 67%, primarily driven by the impact of scaling AI infrastructure.

Discussing the outlook for FY26, Hood said, “We expect capex to grow, it will grow at a lower rate than FY25 and will include a greater mix of short-lived assets which are more directly correlated to revenue than long-lived assets. These investments, along with focused execution that delivers near-term value to our customers, will ensure we continue to lead through the cloud and AI opportunity ahead.”