The Share Price of Microsoft Surges on the Back of Strong Cloud Growth in the Quarter

Microsoft Corp.’s stock climbed sharply after the tech giant delivered quarterly earnings and revenue that beat Wall Street expectations, signaling that demand for its cloud services and AI products remains strong despite ongoing economic uncertainty and global tariff pressures.

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In the fiscal third quarter, Microsoft reported a 13% year-over-year increase in revenue, bringing in $70.1 billion. Adjusted earnings came in at $3.46 per share, both of which exceeded analyst forecasts of $68.5 billion in revenue and $3.21 per share in earnings. This performance demonstrates Microsoft's continued momentum across its business units and its ability to weather broader market headwinds.

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The company has solidified its position as a leader in artificial intelligence innovation, thanks in large part to its partnership with OpenAI, the creator of ChatGPT. Microsoft provides critical cloud infrastructure for OpenAI and has integrated AI capabilities like Copilot assistants into its widely used software applications, including Microsoft Office and Excel. These AI features are becoming increasingly central to its product offerings.

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One of the quarter’s standout performers was Microsoft’s Azure cloud division, which posted a 33% jump in revenue—beating the consensus estimate of 29%. Microsoft attributed 16 percentage points of that growth to AI, up from 13 points in the prior quarter. A new long-term cloud commitment from OpenAI played a key role in boosting Azure’s bookings, according to the company.

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On a call with analysts, Microsoft’s Chief Financial Officer Amy Hood projected that Azure could grow up to 35% in the current quarter when adjusting for currency effects, again exceeding analyst projections. This bullish outlook further fueled investor optimism.

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Following the earnings release, Microsoft shares surged about 8% in after-hours trading. The stock had previously been down roughly 6% for the year through Wednesday's close at $395.26, amid a broader market selloff affecting many tech names. The strong earnings report helped reverse some of that trend.

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Like other tech giants such as Amazon and Alphabet, Microsoft has been rapidly expanding its data center footprint to support the growing demand for generative AI technologies. However, in recent months, the company has pulled back slightly on the pace of data center development. This move has prompted discussions among investors about whether it reflects a strategic shift toward more disciplined spending or a potential softening in AI demand.

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Microsoft’s third-quarter capital expenditures, including lease costs—a key indicator of data center investment—totaled $21.4 billion. That figure is slightly lower than what the company spent in the previous quarter, marking the first decline in over two years. CFO Amy Hood noted that capital spending will continue to rise in the new fiscal year starting in July, though at a slower rate. She also said the company now expects to remain behind on data center capacity to meet AI-related demand longer than it had previously anticipated.

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In addition to cloud and AI, Microsoft’s business applications segment also delivered steady results. Revenue in this unit grew 10% to $29.9 billion, slightly ahead of analyst expectations of $29.7 billion. Microsoft is actively encouraging users to migrate to higher-priced software tiers that offer advanced AI functionality. According to investor relations head Jonathan Neilson, these efforts are paying off by increasing the company’s revenue per user.

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While recent shifts in U.S. government policy—ranging from tariffs to potential budget cuts—have added uncertainty for many businesses, Microsoft has remained relatively insulated. Although the company is not directly impacted by tariffs, broader economic disruptions can affect customer budgets and raise overall costs, which could eventually ripple into demand for software services.

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Despite these challenges, some market experts see Microsoft as a stronghold within the tech sector. “Microsoft’s not as subject to all the worries we see in the tech space,” said Dan Morgan, a senior portfolio manager at Synovus Trust, in a Bloomberg Television interview. “The company beat on every major metric.”

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Microsoft’s hardware business also contributed to its overall growth. The segment that includes the Xbox gaming consoles and Surface laptops posted a 6% year-over-year revenue increase to $13.4 billion, exceeding the average forecast of $12.7 billion. While hardware makes up a smaller portion of Microsoft’s revenue, the growth in this area added to the positive narrative around the company’s diversified performance.

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Altogether, Microsoft’s latest earnings report reaffirmed its resilience in a volatile economic climate and underscored its strategic advantage in the AI race, reinforcing investor confidence heading into the next quarter.

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