Microsoft smashes Wall Street’s earnings expectations

Microsoft (MSFT-0.92%) blew past Wall Street expectations in its fiscal third quarter, racking up $70.1 billion in revenue, up 13%, and $25.8 billion in net income, up 18%, fueled by relentless demand for cloud and AI.

Earnings came in at $3.46 per share, easily topping consensus estimates of $3.22.

Microsoft’s cloud engine kept roaring in Q3, with Azure and other cloud services surging 33% year-over-year, powering a 21% increase in the all-important Intelligent Cloud segment, which hit $26.8 billion. Server product revenue rose 22% as demand for AI infrastructure stayed hot.

The Productivity and Business Processes segment brought in $29.9 billion, up 10% from last year, driven by steady growth in Microsoft 365 and Dynamics. Microsoft 365 Commercial revenue rose 11%, with its cloud-based suite climbing 12%, while consumer revenue grew 10%. Dynamics 365 jumped 16%, lifting Dynamics overall by 11%.

LinkedIn notched a 7% gain, which may look unimpressive to some but feels like a feat in this sluggish job market. (For context, it’s down from 10% revenue growth last year, and 9% revenue growth in the Q2.)

Meanwhile, More Personal Computing generated $13.4 billion, a 6% increase. Xbox content and services rose 8%, search and news advertising surged 21%, and Windows OEM and Devices grew 3% — a rare bright spot in the otherwise sleepy PC category.

Microsoft also returned $9.7 billion to shareholders via dividends and buybacks.

Still, with tech stocks wobbling and investors hungry for proof that AI hype is translating into durable-margin expansion, Microsoft’s forward guidance may end up mattering more than its beat. Expect commentary on the 5:30 p.m. ET earnings call to move markets.

Microsoft turned in a similarly strong showing last quarter, posting $69.6 billion in revenue, up 12%, and $24.1 billion in net income, up 10%, with EPS of $3.23. Microsoft Cloud revenue jumped 21% to $40.9 billion, powered by a 31% gain in Azure and other cloud services. CEO Satya Nadella touted a $13 billion annualized run rate for the company’s AI business — up 175% year-over-year.

Productivity and Business Processes rose 14%, lifted by Microsoft 365, LinkedIn, and Dynamics. More Personal Computing was flat, but search advertising, up 21%, and modest growth in Xbox and Windows OEM, helped balance things out.

Even so, investors sold the news: Microsoft shares fell 6% the next day.

This time, however, the momentum looks like it’ll last. The stock is up 6% after hours.

The post Microsoft smashes Wall Street’s earnings expectations — and the stock soars appeared first on Quartz.