Microsoft beats estimates as AI-era software concerns keep investors cautious

Microsoft delivered a better-than-expected quarterly performance on Wednesday, helped by strong growth in its Azure cloud business, but the company’s results did little to fully calm investor concerns about how artificial intelligence (AI) may reshape its traditional software model. 

Microsoft reported fiscal third-quarter revenue of $82.89 billion, up 18 per cent year-on-year, while earnings per share came in at $4.27, both ahead of analyst forecasts. 

Azure revenue also impressed, rising 39 to 40 per cent and beating consensus expectations.

The software giant further projected Azure growth of up to 40 per cent in the current quarter, signalling continued strong demand for cloud-based AI services.

Management also revealed plans to sharply increase capital expenditure as it builds more computing infrastructure and expands its AI capabilities.

Despite the encouraging numbers, the market reaction remained subdued. Investors are still debating whether Microsoft’s long-profitable seat-based software licensing model can hold up in an AI environment where customers may shift toward usage-based computing rather than paying per employee.

Questions also remain around the company’s dependence on OpenAI for some of Azure’s momentum and whether its Copilot tools can compete with increasingly popular rival AI platforms. 

Microsoft said paid Copilot seats have risen to more than 20 million, showing adoption is improving, though analysts say the company still faces pressure to prove its AI products can generate durable long-term returns.

For now, Microsoft’s quarter offered reassurance — but not a definitive end to Wall Street’s software fears.