Q3 FY2026 Earnings — Reported April 29, 2026 · After Market Close
Revenue +18% to $82.9B — Azure +40% · AI Run Rate $37B · Copilot 20M Seats
Microsoft delivered broad beats across all three segments. Revenue of $82.9B exceeded the $81.5B consensus. EPS of $4.27 beat $4.06 estimates by 5.2%. Azure accelerated to 40% growth — ahead of the 37–38% guided range. AI business hit a $37B annual run rate. The OpenAI partnership was restructured April 27 to eliminate outbound revenue-share payments. Stock fell ~4% post-earnings on $190B CY2026 capex guidance and Q4 revenue midpoint of $87.25B slightly below consensus. Commercial RPO reached $627B, up 99% YoY.
Key Metrics — Q3 FY2026 Actuals
Total Revenue
$82.9B
+18% YoY (+15% CC)
Operating Income
$38.4B
+20% YoY
GAAP Net Income
$31.8B
+23% YoY
Diluted EPS (GAAP)
$4.27
vs $3.46 Q3 FY25
Microsoft Cloud Revenue
$54.5B
+29% YoY
Shareholders Returned
$10.2B
Dividends + buybacks
Azure Growth (CC)
+40%
Beat 37–38% guided range. Acceleration vs prior Q.
AI Annual Run Rate
$37B
Up from $13B in Q2 FY25 — 185% YoY
Copilot 365 Paid Seats
20M+
Up from 15M in January 2026
Commercial RPO
$627B
+99% YoY incl. OpenAI commitments
Beat / Miss Matrix
Beats
Total RevenueEst. $81.46B$82.89B (+1.8%)
Diluted EPSEst. $4.06$4.27 (+5.2%)
Operating IncomeEst. $36.9B$38.4B (+4.1%)
Azure Growth (CC)Guided 37–38%40% (+200–300bps)
Intelligent CloudEst. $34.27B$34.7B (+1.3%)
Productivity & BizProcEst. $34.43B$35.0B (+1.7%)
Concerns
Q4 Revenue GuidanceConsensus $87.53B$87.25B midpoint (miss)
CY2026 CapEx GuidanceConsensus ~$172B$190B (well above)
Cloud Gross Margin~65% guided66% · decreasing YoY
More Personal Computing—$13.2B · −1% YoY
Xbox Content & Services—−5% YoY
Stock ReactionBeat expected−4% to −5.2% post-earnings
P&L Summary — Q3 FY2026 vs Q3 FY2025 (USD billions)
Select Income Statement — Official SEC Filing (April 29, 2026)
Total Revenue$82.9B$70.1B+18%
Intelligent Cloud$34.7B$26.8B+30%
Productivity & Business Processes$35.0B$29.9B+17%
More Personal Computing$13.2B$13.4B−1%
Microsoft Cloud Revenue$54.5B$42.4B+29%
Gross Profit$56.1B$48.2B+16%
Cloud Gross Margin %66%~69%−3pp YoY
Operating Income$38.4B$32.0B+20%
Operating Margin46.3%45.7%+60bps
GAAP Net Income$31.8B$25.8B+23%
Diluted EPS (GAAP)$4.27$3.46+23%
Shareholders Returned$10.2B$9.7B+5%
Segment Detail & CEO Quote
Intelligent Cloud — $34.7B (+30% YoY)
Azure & other cloud services+40% YoY (+39% CC)
Azure AI workloadsAccelerating — capacity unlocking
GitHub CopilotFastest growing product ever
Server products & cloud servicesIncluded in segment
Segment vs prior quarterNow largest segment by revenue
Productivity & Business Processes — $35.0B (+17%)
Microsoft 365 Commercial Cloud+19% YoY
Microsoft 365 Consumer Cloud+33% YoY
Copilot 365 paid seats20M+ (vs 15M Jan 2026)
Dynamics 365+22% YoY
LinkedIn+12% YoY
More Personal Computing — $13.2B (−1%)
Windows OEM & Devices−2% YoY
Xbox content & services−5% YoY
Search advertising (ex-TAC)+12% YoY
Contribution to total16% of revenue (declining)
"Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth. Weekly engagement for Copilot is now at the same level as Outlook, as more and more users make Copilot a habit. Azure growth accelerated this quarter, and with capacity constraints easing, we are well positioned to capture the demand ahead of us."
Satya Nadella, Chairman & CEO · Q3 FY2026 Earnings Call, April 29, 2026
Q4 FY2026 Guidance & Forward Targets
Management Guidance — Q4 FY2026 (Amy Hood, CFO)
Q4 FY2026 Revenue
$86.7–87.8B
+13–15% YoY
Azure Growth Q4 (CC)
39–40%
Accelerating
Cloud Gross Margin Q4
~65%
AI infra pressure
CY2026 Total CapEx
$190B
Above $172B est.
Q4 Operating Margin
~45%
AI cost pressure
AI Annual Run Rate
$37B ✓
Achieved Q3
Commercial RPO
$627B (+99%)
Multi-year visibility
Positives & Concerns
Positives
▲Azure growth accelerated to 40% in constant currency — beating management's own 37–38% guidance range and reversing a multi-quarter deceleration trend. Capacity constraints are easing as new data centers come online.
▲AI business reached a $37B annual run rate — up from $13B in Q2 FY2025, representing 185% growth in four quarters. Copilot for Microsoft 365 surpassed 20M paid seats, up from 15M in January, with weekly engagement now matching Outlook.
▲OpenAI partnership restructured on April 27 eliminates outbound revenue-share payments to OpenAI while preserving Azure priority and IP licence through 2032. Directly improves Microsoft's long-term margin profile on AI services.
▲Commercial Remaining Performance Obligation of $627B — up 99% YoY — provides extraordinary multi-year revenue visibility. Even the operational $490B+ figure (excluding OpenAI) still grew 26%, indicating broad enterprise demand.
▲Operating margin expanded 60bps to 46.3% despite heavy AI infrastructure investment — demonstrating that cloud and AI services carry structurally higher margins than legacy on-premises products as the mix shifts.
Concerns
▼$190B CY2026 capex guidance was significantly above the $172B consensus — driven by soaring memory costs. The stock fell ~4–5% post-earnings primarily on this number, raising questions about return on invested capital and free cash flow conversion timelines.
▼Q4 revenue guidance midpoint of $87.25B was slightly below the $87.53B Street consensus. For a company priced at a premium, even marginal guidance misses create outsized negative reactions — as demonstrated by the post-earnings selloff.
▼Cloud gross margin decreased to 66% — down from ~69% a year ago — as AI infrastructure investment and growing AI product usage compress margins. Management guided this pressure continues into Q4 at ~65%.
▼More Personal Computing declined 1% to $13.2B — Xbox content fell 5% and Windows OEM devices fell 2%. Consumer hardware remains structurally challenged with no clear near-term recovery catalyst.
▼Total company headcount declined year-over-year — reflecting the ongoing workforce restructuring. While this supports margins short-term, it signals a business model transition period with execution risk around maintaining innovation velocity at reduced staffing levels.
Analyst Coverage — Post Q3 FY2026
Wall Street Ratings
| Firm | Rating | Action | Price Target | Note |
|---|
| Evercore ISI | Outperform | Maintained | — | Maintained despite −5.2% drop; Azure acceleration thesis intact |
| Wedbush | Outperform | Raised PT | $550 | AI monetization accelerating; Copilot seat growth conviction |
| Goldman Sachs | Buy | Maintained | $500 | Azure beat notable; capex trajectory bears watching |
| Morgan Stanley | Overweight | Maintained | $472 | Azure acceleration reversal is the key positive signal |
| Cautious end | Neutral | Concern | ~$380 | CapEx at $190B raises FCF pressure — margin compression risk |
| Consensus (~55 analysts) | Strong Buy | — | ~$500–510 | ~85% Buy ratings · stock ~$408 post-earnings |
Earnings Verdict
Azure Reaccelerates — CapEx the New Battleground
Microsoft delivered a genuinely strong Q3 FY2026 on every operational metric that matters: Azure grew 40% — beating guidance — the AI business hit a $37B run rate, Copilot seats jumped from 15M to 20M+, and the OpenAI restructuring removes a long-standing margin overhang. The EPS beat of 5.2% and operating margin expansion to 46.3% confirm that scale advantages are materializing. The market's −4% to −5% reaction reflects a repricing of risk, not operating failure: $190B in CY2026 capex and a Q4 revenue guidance midpoint slightly below consensus have shifted investor focus from growth to capital efficiency and return on invested capital. At ~$408 post-earnings with a consensus PT of ~$500–510, the implied upside is approximately 24%. The key question heading into Q4 FY2026 is whether the loosening capacity constraints translate into further Azure acceleration — management guided 39–40% growth for Q4, which would confirm the reacceleration thesis.
Next Earnings
Late Jul 2026