Key Stats
- Current Price: ~$424
- Q3 FY2026 Revenue: $82.9B, up 18% YoY
- Q3 FY2026 EPS (adjusted): $4.27, up 21% YoY
- Q3 FY2026 Intelligent Cloud Revenue: $34.7B, up 30% YoY
- Q3 FY2026 Azure Revenue Growth: 40% YoY (39% in constant currency)
- Microsoft Cloud Revenue: $54.5B, up 29% YoY
- AI Business ARR: $37B+, up 123% YoY
- Q4 FY2026 Revenue Guidance: $86.7B to $87.8B (13% to 15% growth)
- Full Year FY2026 Operating Margin: Expected up ~1 point YoY
- TIKR Model Price Target: ~$905
- Implied Upside: ~113%
Earnings Breakdown: Microsoft Stock Tops $82B as Azure Accelerates to 40%
Microsoft stock (MSFT) posted Q3 FY2026 revenue of $82.9B, up 18% year-over-year, with EPS of $4.27, up 21%.
Azure revenue grew 40% year-over-year in Q3, up from 31% in Q3 FY2025, marking a sequential acceleration that drove the Intelligent Cloud segment to $34.7B in revenue, up 30%.
Microsoft Cloud revenue crossed $54.5B for the quarter, up 29%, with Microsoft Cloud gross margin coming in at 66%.
The AI business annual revenue run rate surpassed $37B this quarter, up 123% year-over-year, according to CFO Amy Hood on the Q3 FY2026 earnings call.
Satya Nadella, Chairman and CEO, confirmed on the call that Microsoft 365 Copilot paid seats now exceed 20 million, with seat adds up 250% year-over-year representing the fastest growth since launch.
Productivity and Business Processes revenue was $35B, up 17%, with M365 Commercial Cloud growing 19% and Dynamics 365 up 22%.
More Personal Computing came in at $13.2B, down 1%, with gaming revenue declining 7% against a prior-year period that benefited from strong first-party content.
For Q4 FY2026, management guided total revenue of $86.7B to $87.8B, representing 13% to 15% growth, with Azure growth expected at 39% to 40% in constant currency.
Microsoft also guided full-year FY2026 operating margins up approximately 1 point year-over-year, inclusive of roughly $900M in one-time voluntary retirement costs in Q4.
Capital expenditures were $31.9B in Q3, and management guided Q4 CapEx to exceed $40B as additional AI infrastructure capacity comes online.
Microsoft returned $10.2B to shareholders through dividends and buybacks in the quarter.
Microsoft Stock’s Financials: Operating Leverage Holds Through Heavy AI Investment
The Q3 income statement shows Microsoft stock holding operating leverage even as AI infrastructure costs intensify.
Gross margin for the quarter ended March 31, 2026 came in at 68%, flat versus 68.7% in both the March 2025 and December 2024 quarters, and down from 70.1% a year ago in March 2024.
Gross profit grew to $55.3B in the December 2025 quarter and held at that level through March 2026, up from $48.2B in March 2025.
Operating margin came in at 46% for Q3 FY2026 (March 31, 2026), up slightly year-over-year from 45.7% in March 2025.
Operating income reached $38.4B this quarter, up from $32B in the year-ago quarter, continuing a steady rise from $27.6B in March 2024.
The operating margin trend across the past eight quarters has ranged from 43.1% to 48.9%, with the September 2025 quarter peaking at 48.9% before normalizing to 47.1% in December 2025 and 46% in the current quarter.
Hood attributed the gross margin pressure to continued AI infrastructure investment and growing AI product usage, partially offset by efficiency gains in Azure and M365 Commercial Cloud, according to her prepared remarks on the Q3 FY2026 call.
What Does the Valuation Model Say?
The TIKR model prices Microsoft stock at ~$905, implying ~113% upside from the current price of ~$424.
The mid-case model assumes a 15% revenue CAGR and a 40% net income margin through fiscal year 2035, producing an IRR of approximately 17%.
This quarter’s results reinforce rather than test those assumptions: Azure accelerated to 40% growth, AI ARR hit $37B at 123% growth, and management guided for FY2027 double-digit revenue and operating income growth, suggesting the 15% revenue CAGR is grounded in current execution.
The risk/reward picture on Microsoft stock improved with this report: capacity constraints remain the binding variable, but management signaled modest Azure acceleration in the second half of calendar 2026 as new infrastructure comes online.
The central question for Microsoft stock is whether heavy CapEx spend converts to revenue fast enough to justify a multiple that already prices in strong long-term execution.
Bull Case
- Azure grew 40% this quarter and management guided 39% to 40% in Q4 against a strong prior-year comparable, suggesting the growth rate is durable, not a one-quarter spike.
- Microsoft 365 Copilot paid seats surpassed 20 million with seat adds up 250% YoY; the shift to seats plus consumption pricing, now underway across GitHub and customer service, expands revenue per user beyond the seat ceiling.
- Commercial RPO hit $627B, up 99% year-over-year, with roughly 25% recognized in the next 12 months (up 39% YoY), providing strong revenue visibility to support the 15% CAGR assumption in the TIKR model.
- Management guided FY2027 for another year of double-digit revenue and operating income growth, with headcount declining YoY, pointing toward margin expansion even as AI investment continues.
Bear Case
- Q4 CapEx is guided to exceed $40B, with full calendar year 2026 CapEx expected at roughly $190B; free cash flow came in at $15.8B this quarter against $31.9B in CapEx, and that gap widens as investment accelerates.
- Gross margin has compressed from 70.1% in March 2024 to 68% in March 2026, and management cited continued AI investment and growing Copilot usage as ongoing headwinds into Q4.
- More Personal Computing revenue declined 1% this quarter and is guided down further in Q4, with Windows OEM expected to fall in the high teens, creating a meaningful drag on total reported growth.
- Azure demand continues to exceed available capacity through at least 2026 by management’s own acknowledgment, meaning near-term revenue is supply-constrained regardless of demand strength.
Should You Invest in Microsoft Corporation?
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