Microsoft delivered a decisive answer to investors questioning whether massive AI capital spending is paying off, reporting fiscal third-quarter revenue of $82.9 billion and disclosing that its AI business has surged past a $37 billion annual run rate. The results, posted after the close on Wednesday, came on an earnings day that put the entire AI trade under the microscope as Alphabet, Meta, and others also reported.
Azure Reaccelerates to 40%
Revenue rose 18% year-over-year (15% in constant currency), with operating income up 20% to $38.4 billion and net income climbing 23% to $31.8 billion on a GAAP basis. Diluted earnings per share came in at $4.27, beating consensus.
The headline number for AI watchers was Azure. Microsoft's flagship cloud platform grew 40% year-over-year, topping the 37–38% range the company had guided to last quarter and putting to rest fears that capacity constraints would cap growth. Microsoft Cloud revenue overall reached $54.5 billion, up 29%, while commercial remaining performance obligation — the contracted backlog of cloud revenue — nearly doubled to $627 billion.
$37B AI Run Rate, Up 123%
"Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year," CEO Satya Nadella said in prepared remarks. Microsoft defines that figure broadly: it includes revenue from clients running AI services on Azure, business from model builders such as OpenAI, and the company's own AI products.
Microsoft 365 Copilot also crossed a notable threshold. The company disclosed more than 20 million paid Copilot seats, up from 15 million reported the prior quarter — a 33% sequential jump that suggests enterprise adoption is finally moving past pilot stage for many customers.
Earnings Day Stakes
The report landed at a moment of acute investor anxiety about AI returns on investment. A day earlier, a Wall Street Journal report claiming OpenAI had missed internal user and revenue targets dragged chip stocks lower, with Oracle and CoreWeave both off more than 5% in pre-market trade. Alphabet, also reporting Wednesday, posted $109.9 billion in revenue with Google Cloud at $20.03 billion, while Meta raised its 2026 capital spending forecast by $10 billion at both ends of its range — to $125–$145 billion — to fund data centers.
CFO Amy Hood said Microsoft's results "exceeded expectations across revenue, operating income, and earnings per share, reflecting strong execution and growing demand for the Microsoft Cloud." The company returned $10.2 billion to shareholders through dividends and buybacks during the quarter.
What It Means
For a market that has spent weeks debating whether the AI build-out is sustainable, Microsoft's print offers the clearest data point yet that paid AI consumption — not just experimentation — is scaling at hyperscale. With Azure reaccelerating, Copilot seats compounding, and a $627 billion contract backlog, the AI capex thesis just got its strongest defense of the earnings cycle.
