Microsoft’s Earnings Soar on Cloud Sales, Well Above Wall Street Expectations

Shares of the company rose nearly 7 percent in after-hours trading.

Microsoft Corporation headquarters at Issy-les-Moulineaux, near Paris, France, on April 18, 2016. Reuters/Charles Platiau

Sales of Microsoft Corp.’s growing cloud services jumped more than 20 percent in the third quarter of fiscal year 2025, boosting earnings and surpassing Wall Street expectations.

For the period ending March 31, the Redmond, Washington-based software giant reported net income of 25.8 billion, or $3.46 per share, compared with $21.9 billion, or $2.94 per share, in the third quarter of fiscal year 2024. Revenue jumped 13 percent to $70.1 billion, compared with $61.8 billion a year ago.

The West Coast tech titan was expected to report third-quarter earnings per share of $3.20 on revenue of $68.54 billion, according to FactSet’s consensus estimates. During the conference call after the close of the market, Microsoft chairman and CEO Satya Nadella told Wall Street analysts that the strong first growth was driven by continued demand for the company’s differentiated offerings like cloud services and AI.

“Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth,” said Nadella, noting that Microsoft Cloud revenue rose 20 percent to $42.4 billion.

In highlighting the company’s growing AI business, Nadella said Microsoft continues to expand its global data center capacity to handle the growth of cloud computing and AI businesses. He said Microsoft opened data centers in 10 countries across four continents during the quarter.

“We continue to optimize and drive efficiencies across every layer from data center design to hardware and silicon to system software to model optimization, all towards lowering costs and increasing performance,” Nadella said.

For the quarter, Microsoft reported capital spending of $16.7 billion, up from $11 billion in the same period a year earlier. CFO Amy Hood told analysts that the company’s capital expenditure outlook remained unchanged but noted that “it will grow at a lower rate than fiscal 2025 and will include a great mix of short-lived assets.”

“These investments, along with focused execution that delivers near-term value to our customers, will continue to lead the cloud and AI opportunity ahead,” Hood said.

Microsoft announced on Jan. 29 changes to its partnership with AI partner OpenAI that began in 2019. Going forward, the company said it will have the right of first refusal (ROFR) to use OpenAI’s intellectual properties within its products such as Copilot. In addition, OpenAI made a new commitment to Microsoft’s cloud services platform, Azure, which will support all partner AI products and provide training. This new agreement also includes changes to the exclusivity on new capacity with Azure, moving to a model where Microsoft has ROFR.

Currently, Microsoft and OpenAI have revenue-sharing agreements that flow both ways, ensuring that both companies benefit from increased use of new and existing models. Microsoft is already a major investor in OpenAI, providing funding and capacity to support its advancements while benefiting from its valuation growth.

Microsoft also reiterated its partnership with OpenAI on the Stargate AI infrastructure project. During a White House ceremony on Jan. 21, Microsoft, OpenAI, Oracle, and Japanese investor Softbank first announced the Trump-endorsed Stargate Project, which intends to invest $500 billion over the next four years to build new AI infrastructure in Abilene, Texas.

British technology company Arm Holdings plc, Microsoft, NVIDIA, and Oracle agreed to deploy an initial $100 billion investment immediately.

In January, Microsoft also committed to $80 billion in capital spending for artificial intelligence data centers in the current fiscal year, which ends June 30. At the time, Hood said the company expected a slowdown in capital spending growth for the upcoming 2026 fiscal year that begins July 1.

At the close of business on April 20, Microsoft’s shares closed up 0.31 percent at $395.26 on the Nasdaq Stock Exchange. In the after-hours session, the stock gained 6.93 percent $425.