Microsoft faces show-me Q3

Microsoft reports fiscal third-quarter results on Wednesday, April 29, with Wall Street looking for proof that its AI spending is turning into cloud revenue. (microsoft.com) (msn.com) The setup is demanding. In the January quarter, Microsoft posted $81.3 billion in revenue, $4.14 in adjusted earnings per share, and 39% growth in Azure and other cloud services. (microsoft.com 1) (microsoft.com 2) Microsoft also said Microsoft Cloud revenue crossed $50 billion for the first time, reaching $51.5 billion, while Intelligent Cloud revenue rose 29% to $32.9 billion. (microsoft.com) The core question now is whether that pace can hold as Microsoft keeps pouring cash into data centers, chips and networking gear for artificial intelligence workloads. Microsoft spent $37.5 billion on capital expenditures and finance leases in the December quarter. (cnbc.com) That spending has become the pressure point in the story. Microsoft’s cloud gross margin slipped to 67% in the last quarter from 68% in the prior quarter and 70% a year earlier. (microsoft.com) Investors are also watching backlog, a measure of signed business that has not yet shown up as revenue. Microsoft said commercial remaining performance obligation climbed 110% to $625 billion, helped by OpenAI’s $250 billion cloud commitment. (microsoft.com) (cnbc.com) That backlog number made the quarter look stronger, but it also raised the bar for delivery. If capacity is tight or customers ramp more slowly than expected, investors will look for that in Azure growth and margin guidance. (microsoft.com) (msn.com) Copilot is the other test. Microsoft said in January that Microsoft 365 Copilot had more than 15 million paid seats, giving investors one of the few hard numbers on adoption of its AI software products. (cnbc.com) For this quarter, Microsoft’s own guide called for Azure growth of 37% to 38% in constant currency and total revenue of $80.65 billion to $81.75 billion. That means even a small slowdown could dominate the reaction. (cnbc.com) The report lands after Microsoft shares recovered from the post-January selloff that followed lighter margin guidance. Wednesday’s numbers now have to show that the company can keep Azure growing fast enough to justify the build-out. (cnbc.com) (msn.com)