Microsoft Reports Strong Earning as Azure Cloud Revenue Soars by 40%. The Stock Is Still Down.

Microsoft stock has rallied 29% so far this year. (Michael M. Santiago/Getty Images)

Key Points

• Analysts project Microsoft’s first fiscal quarter revenue at $75.4 billion with adjusted earnings per share of $3.67.
• HSBC raised Microsoft’s price target to $648, citing expected 46% annual Azure revenue growth from 2025 to 2027.
• Microsoft’s Azure sales grew 39% year-over-year, outpacing Amazon Web Services’ 18% growth in the most recent quarter.

Microsoft reported better-than-expected earnings results and strong cloud revenue growth. Its shares were still falling in early trading Thursday.

For the September quarter, Microsoft reported adjusted earnings per share of $4.13, compared to Wall Street’s consensus estimate of $3.67, according to FactSet. Revenue came in at $77.7 billion, which was ahead of analysts’ expectations of $75.4 billion. Azure revenue rose by 40% versus a 38% analyst estimate.

“Continued strength in the Microsoft Cloud reflects the growing customer demand for our differentiated platform,” Microsoft CFO Amy Hood said in the release.

During the earnings call with investors, Hood provided a revenue guidance range of $79.5 billion to $80.6 billion for the current quarter, which bracketed the current Street estimate of $80.1 billion. She also said Azure growth will come it at 37% growth in constant currency, which is inline with the Wall Street consensus, adding demand remains “significantly ahead of capacity.”

Microsoft shares, already down on the earnings report, slipped more following Hood’s outlook. The stock was down 2.1% in early trading on Thursday.

Microsoft CEO Satya Nadella said the company’s total AI capacity would grow by over 80% this year with its data center footprint doubling over the next two years.

That’s going to require a lot of spending. Microsoft’s said capital expenditures for the quarter reached $34.9 billion, exceeding expectations. Hood said that the company’s capex growth rate for fiscal 2026 will be above the rate in 2025.

Bernstein analyst Mark Moerdler reaffirmed his Outperform rating and raised his price target for Microsoft stock to $645 from $637 on Thursday, noting the company would have generated better results if it had more AI data centers built. “Microsoft could be growing even faster due to real, contracted, ready to bill backlog if only they had capacity. As capacity comes online Microsoft should deliver even stronger results,” he wrote. “We like the setup for continued strong growth and recommend buying into any weakness.”

On Tuesday, Microsoft and OpenAI announced that the artificial-intelligence start-up will convert its for-profit subsidiary into a public-benefit corporation of which Microsoft will own 27%. OpenAI will purchase an additional $250 billion of Azure services from Microsoft in the future.

The announcements may have pulled forward some of the earnings-related gains as Microsoft stock rose by 2% Tuesday.

Microsoft stock has rallied 26% so far this year as of Wednesday’s close, compared with a 23% rise for the Nasdaq Composite index.

Write to Tae Kim at tae.kim@barrons.com