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2026-04-30 14:26:00
finance.yahoo.com
Microsoft (MSFT) reported a strong third quarter, driven by growth in its cloud and AI businesses. By all measures, MSFT’s Q3 results should have pushed the stock higher. Instead, shares dipped about 1.8% in pre-market trading after the earnings release and are down about 5% in afternoon trading today.
The lukewarm market reaction stems from higher spending. Microsoft is investing heavily in AI infrastructure to capture future growth, and those costs are putting pressure on margins in the near term. At the same time, management expects only a modest pickup in Azure (its cloud computing platform) growth, even with this increased investment.
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The company plans to spend $190 billion on capital expenditures in 2026, including $25 billion related to higher component costs. MSFT’s management remains confident these investments will pay off, citing strong demand, rising product usage, and ongoing efficiency improvements across its platform. However, despite accelerating efforts to expand capacity, Microsoft expects supply constraints to persist through at least 2026, which could restrict Azure’s growth rate.
Despite the market’s muted reaction, Microsoft’s core businesses remain strong. Its cloud and AI segments are positioned for meaningful expansion over time. Moreover, MSFT expects Azure’s growth to show modest acceleration in the second half of 2026 compared to the first half. This is due to current supply constraints, which are temporary and expected to ease over time, boosting Azure’s growth rate.
Cloud and AI to Power MSFT Stock Higher
Microsoft is positioned to deliver strong growth in the coming quarters, driven by the sustained strong demand for its cloud infrastructure and AI offerings. In the most recent quarter, the company reported revenue of $82.9 billion, up 18% year-over-year (YoY). The top line was driven by Microsoft Cloud, which generated $54.5 billion in revenue, up 29%.
Microsoft’s commercial remaining performance obligation (RPO) increased 99% to $627 billion, signaling solid growth ahead. Notably, about one-quarter of this backlog is expected to convert into revenue over the next 12 months, growing 39% YoY. Meanwhile, longer-dated commitments surged 138%, supporting multi-year growth.
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