NASDAQ:MSFT delivers another commanding quarter with $70.1 b in revenue and $3.46 eps
microsoft closed its fiscal third quarter reporting revenues of $70.1 billion, a 13.3 percent increase from the prior year, comfortably ahead of the street’s $68.5 billion consensus. diluted earnings per share reached $3.46, marking a 19 percent y/y advance and beating forecasts by $0.24. operating margins expanded by one percentage point to 46 percent, underscoring the durability of profitability even as microsoft continues investing heavily in growth initiatives.
azure’s accelerated 35 percent constant-currency growth underscores ai strategy paying off
in the intelligent cloud segment, azure once again led the charge, posting 35 percent y/y revenue growth in constant currency—its second-highest quarterly increase to date. of that gain, ai services contributed sixteen percentage points, up from thirteen in q2. cfo amy hood highlighted that newly commissioned capacity came online ahead of plan, allowing the company to moderate capex growth in fy 2026 while still meeting surging demand. adoption of microsoft fabric climbed 80 percent y/y, and github copilot users jumped fourfold to exceed 15 million, signaling robust uptake of ai-powered tooling across enterprise customers.
personal computing and productivity segments deliver meaningful upside beyond cloud
outside of azure, the personal computing division generated $13.4 billion in revenue, beating estimates of $12.7 billion by over $700 million. most notably, search and news advertising revenue surged 23 percent y/y—the best performance in five quarters—driven by dynamic ad generation and new ads studio capabilities. productivity and business processes, anchored by office 365 commercial and linkedIn, contributed $29.9 billion, up 10 percent y/y and topping the $29.7 billion consensus. this all-round strength emphasizes that the company’s growth story extends well beyond cloud infrastructure.
operating cash flow rebounds to $37 b and free cash flow totals $20.3 b
microsoft’s cash generation power remains unrivaled. operating cash flow climbed to $37 billion, supporting $20.3 billion in free cash flow and lifting the free cash flow margin to 29 percent. this liquidity underpins ongoing share repurchases, strategic m&a in ai, and dividend increases. insiders have been actively buying shares following the earnings release, reflecting confidence in the company’s trajectory (see insider transactions at https://www.tradingnews.com/Stocks/MSFT/stock_profile/insider_transactions).
valuation offers upside with forward pe discount to five-year median and peers
msft now trades at a forward p/e of 27x our projected fy 2026 eps of $15.41, below its five-year median of 30.5x and cheaper than most “sensational six” peers. applying a discounted cash flow framework with a 10.2 percent cost of equity and a 5 percent terminal growth rate yields a fair value near $500 per share. with guidance calling for 34–35 percent azure growth in q4 and a disciplined capex trajectory, there appears to be room for multiple expansion as the market recognizes continued outperformance. real-time chart: https://www.tradingnews.com/Stocks/MSFT/real_time_chart.
macroeconomic and competitive headwinds remain but do not derail momentum
the primary risks include potential cutbacks in enterprise it budgets if economic conditions worsen, and intensifying competition for ai workloads from google, amazon and meta. any material slowdown in azure growth or unexpected margin compression could test investor patience.
rating and strategic outlook
with microsoft’s q3 results once again showcasing blazing revenue beats, record cloud adoption and exceptional free cash flow, the company remains well positioned to capitalize on the enterprise shift to ai and cloud computing. the stock’s current valuation below historical norms and strong insider support reinforce our positive view.
