Microsoft, Copilot 20 Million Seats

Microsoft posted EPS of $4.27 and revenue of $82.89B for its fiscal third quarter ended March 31, beating expectations.

AI/Cloud

• Azure and other cloud revenue grew 40%.
• Intelligent Cloud revenue was $34.68B, above the consensus of $34.27B.
• Productivity and Business Processes revenue was $35.01B, up 17% and above the consensus of $34.43B.
• More Personal Computing revenue was $13.19B, down 1% but above the expected $12.73B.
• Microsoft 365 Copilot paid seats surpassed 20 million, up from 15 million in January, and are expected to grow further in the September quarter.
• AI annualized revenue reached $37B, up 123%.

Guidance/Investment

• Third-quarter CAPEX and finance leases were $31.9B, up 49%, but below the expected $34.9B.
• Gross margin was 67.6%, the lowest since 2022 amid depreciation pressure from data center expansion.
• Fourth-quarter revenue guidance was $86.7B–$87.8B, with the midpoint below consensus.
• Fourth-quarter Azure growth is projected at 39–40%, above the StreetAccount estimate of 37%.
• Operating margin is expected to decline to 44%, below the expected 44.6%.
• 2026 CAPEX was guided at $190B, up 61% from 2025 and well above the market expectation of $154.6B.
• The impact from rising memory and other component prices alone was estimated at $25B.

Other

• Under new terms with OpenAI, revenue sharing has ended, and Azure exclusivity was broken, but IP rights for 6 years were retained.
• Microsoft is ramping up investment further amid AI infrastructure costs and a changing relationship with OpenAI.