Microsoft has delivered another strong quarter, with its Azure cloud segment growing by a remarkable 33% year-over-year. The tech giant attributed much of the gain to increasing AI integration across its cloud offerings. AI contributed 16 percentage points to Azure’s growth, up from 13 points in the previous quarter.
Azure Cloud Earnings Exceed Estimates
Microsoft’s Azure revenue increase outpaced the analyst estimates of 29.7%, according to data from Visible Alpha. Azure fell under the Intelligent Cloud segment which generated $26.8 billion in overall revenue. Microsoft reported $70.1 billion in overall revenue, a 13% increase year-over-year, and a net operating income of $3.46 per share, exceeding Wall Street’s forecast of $3.22 per share.
AI and OpenAI Partnerships Drive Expansion
Much of Microsoft’s cloud momentum comes from its deep investment in AI infrastructure. A major deal with OpenAI, the creator of ChatGPT, played a role in driving commercial bookings up 18% in Q3. While Microsoft declined to disclose specifics, CFO Amy Hood noted that AI was performing in line with internal expectations, with upside stemming from early delivery of hardware to certain enterprise clients.
Interestingly, executives pointed out that the real strength in Azure this quarter came from its non-AI business. However, Microsoft continues to pour billions into expanding AI capacity, particularly in GPUs and custom chips essential for large-scale language model processing
Microsoft Shifts Spending Toward Chips
Another key development was Microsoft’s evolving capital expenditure strategy. In Q3 alone, capex jumped 53% to $21.4 billion. However, the company is now focusing more on shorter-lived assets like processors, rather than longer-term investments like data center buildings.
Investor Relations VP Jonathan Neilson emphasized this shift, noting that with faster deployment of CPUs and GPUs—supplied by vendors like Intel, AMD, and Nvidia—Microsoft can begin monetizing infrastructure sooner. This pivot suggests a more agile approach to AI hardware scaling, aligning with high demand for cloud-based machine learning services.
Conclusion
Microsoft’s results for Q3 are positive and indicate a clear leadership position in cloud computing and artificial intelligence. With Azure at 33% growth and a 16-point AI bump, demand is certainly not due to any macroeconomic risk, whether from U.S. tariffs or a global slowdown in spending.
Microsoft’s investment in chips and clear AI roadmap should mean will maintain its current pace of growth, as well. Their push into infrastructure to support the partnership with OpenAI only demonstrates the need for speed for businesses switching to AI solutions.
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