Microsoft posts Q3 earnings beat, issues $190B capex guidance for 2026

Microsoft issued higher-than-expected capex guidance for 2026, with the software maker's quarterly earnings and revenue topping estimates. Here's how the company did in comparison with LSEG consensus: Earnings per share: $4.27 adjusted vs. $4.06 expected Revenue: $82.89 billion vs. $81.39 billion expected Microsoft's revenue grew 18% year over year in the quarter, which ended on March 31, according to a statement. Net income of $31.78 billion, or $4.27 per share, was up from $25.82 billion, or $3.46 per share, in the same quarter a year earlier. Adjusted earnings exclude a $14 million decrease in net income from Microsoft's OpenAI investments. With respect to guidance, Microsoft's finance chief, Amy Hood, called for $86.7 billion to $87.8 billion in fiscal fourth-quarter revenue. The middle of the range, at $87.25 billion, was below LSEG's $87.53 billion consensus. Microsoft foresees Azure cloud growth between 39% and 40% at constant currency, above StreetAccount's 37% consensus. Hood's forecast implies that Microsoft's operating margin for the fiscal fourth quarter will tick down to 44% from 46.3%, and will be narrower than StreetAccount's 44.6% consensus. Microsoft reported $31.9 billion in fiscal third-quarter capital expenditures and finance leases, up 49% and less than the $34.9 billion consensus among analysts polled by Visible Alpha. Gross margin, at 67.6%, was the narrowest since 2022, as depreciation costs mounted in connection with the company's data center infrastructure build-out. For the 2026 calendar year, Hood said on a conference call that she anticipates $190 billion in capital expenditures, with a $25 billion impact from higher component prices. The Visible Alpha consensus was considerably lower, at $154.6 billion. Microsoft's headcount will go down year over year in the 2027 calendar year, which will end in June 2027. "We continue to evolve how we operate, to increase our pace and agility," Hood said. Revenue from Microsoft's Azure and other cloud services surged 40%. Analysts polled by StreetAccount and CNBC had expected 39.3% and 38.8%, respectively. The full Intelligent Cloud segment containing Azure, server products and GitHub and Nuance cloud services posted $34.68 billion in revenue. The sum came in higher than the $34.27 billion consensus among analysts surveyed by StreetAccount. Microsoft's Productivity and Business Processes segment, which includes Office productivity software, LinkedIn and Dynamics business software, totaled $35.01 billion in revenue. The figure was up about 17% and above StreetAccount's $34.43 billion consensus. The company now has over 20 million seats for the 365 Copilot artificial intelligence add-on for commercial Office subscriptions, up from 15 million in January. The count will be go up again in the September quarter, Hood said. "Weekly engagement is now at the same level as Outlook as more and more users make Copilot a habit," CEO Satya Nadella said on the earnings call. Microsoft's More Personal Computing unit, which includes the Windows operating system, Xbox, Surface devices and Bing search advertising, contributed $13.19 billion in revenue, down 1%. StreetAccount's consensus was $12.73 billion. Sales of Windows licenses to device makers and Microsoft's own devices were down 2%. Technology industry researcher Gartner estimated that PC shipments increased by 4% during the quarter. Microsoft now has 1.6 billion monthly active Windows devices, Nadella said. Annualized revenue from AI altogether now stands at $37 billion, up 123%. The number includes business from clients running AI services on Azure, including all revenue from model builders, as well as revenue from Microsoft's own AI tools. AI systems that use standard central processing units, storage and other services, excluding model builders, are left out. Microsoft now has $627 billion in commercial remaining performance obligations, encompassing unearned revenue and amounts that will be recognized as revenue. The number was up by $2 billion from the prior quarter. During the quarter, the most senior Office software leader, Rajesh Jha, announced plans to retire, as did gaming chief Phil Spencer. As of Wednesday's close, Microsoft stock was down 12% so far in 2026, following its worst quarterly performance since 2008. That's due in part to broader market concern that AI will eat software, and fears specific to the company that its hefty AI investments won't produce the desired results. Tech stocks are poised to wrap up their best month since April 2020, the early days of the Covid pandemic, with the Nasdaq up 14% for the month as of Wednesday's close. Wall Street has been piling into the sector despite concerns that surging oil prices and supply chain disruptions from the war in Iran will lead to rising costs for AI infrastructure. The four hyperscalers — Alphabet, Amazon, Meta and Microsoft — all reported results on Wednesday, updating investors for the first time since the U.S. began combat operations in Iran in late February. This is breaking news. Please refresh for updates.