As of the third quarter of fiscal year 2025, Microsoft continues to demonstrate robust growth and strategic advancement across its core business segments, solidifying its leadership in cloud computing, artificial intelligence (AI), and enterprise services.
The company reported revenue of $70.1 billion, up 13% year-over-year, while net income rose 18% to $25.8 billion. Earnings per share came in at $3.46, beating market expectations.
| (in US$ millions) | Q3 2025 | Q3 2024 |
| Revenue | ||
| Productivity and Business Processes | 29,944 | 27,113 |
| Intelligent Cloud | 26,751 | 22,141 |
| More Personal Computing | 13,371 | 12,604 |
| Total | 70,066 | 61,858 |
| Operating Income | ||
| Productivity and Business Processes | 17,379 | 15,143 |
| Intelligent Cloud | 11,095 | 9,515 |
| More Personal Computing | 3,526 | 2,923 |
| Total | 32,000 | 27,581 |
Productivity and Business Processes
In Q3 FY2025, Microsoft’s Productivity and Business Processes segment delivered solid results, generating $29.9 billion in revenue, a 10% increase year-over-year. This growth was primarily driven by strong demand for Microsoft 365 commercial products, with Office 365 Commercial revenue growing 12% thanks to higher ARPU (average revenue per user) and seat growth. LinkedIn also contributed positively with a 7% revenue increase, reflecting continued momentum in talent solutions and advertising. Dynamics, particularly Dynamics 365, posted impressive double-digit growth of 11%, supported by increased adoption of AI-powered business applications.
The integration of AI features, such as Copilot in Microsoft 365 and enhancements in Dynamics, has been central to driving customer engagement and upsell opportunities. Copilot, which leverages Microsoft’s AI infrastructure and large language models, has deepened the value proposition of Office apps like Word, Excel, and Outlook, leading to greater enterprise adoption. The segment’s profitability remained strong as well, supported by the cloud-based subscription model and higher-value services. As Microsoft continues to embed AI into its productivity tools, this segment is expected to maintain steady growth and contribute meaningfully to the company’s overall performance.
Intelligent Cloud
Microsoft’s Intelligent Cloud segment demonstrated robust performance, generating $26.8 billion in revenue, a 21% increase year-over-year. This growth was primarily driven by a 33% rise in Azure and other cloud services revenue, with AI services contributing 16 percentage points to Azure’s growth. Operating income for Intelligent Cloud rose by 17%, reaching $11.1 billion, underscoring the segment’s profitability.
Microsoft’s strategic focus on AI has been a significant factor in its Intelligent Cloud success. The company has accelerated its data centre expansion to meet the growing demand for AI workloads, with capital expenditures amounting to $21.4 billion in Q3. This investment supports the deployment of AI services across Microsoft’s platforms, including Azure, Microsoft 365, and GitHub. The integration of AI into these services has not only enhanced their capabilities but also increased customer adoption, contributing to the segment’s revenue growth. Looking ahead, Microsoft anticipates continued growth in its Intelligent Cloud segment, projecting revenue between $28.75 billion and $29.05 billion in the next quarter, driven by sustained demand for AI and cloud services.
More Personal Computing
In the third quarter of fiscal year 2025, Microsoft’s More Personal Computing segment reported revenue of $13.4 billion, reflecting a 6% increase year-over-year. This growth was primarily driven by a 3% rise in Windows OEM and Devices revenue, attributed to sustained demand for Windows PCs, despite elevated inventory levels due to tariff uncertainties. Additionally, Xbox content and services revenue grew by 8%, fuelled by strong performance in titles like Call of Duty and Minecraft, as well as continued expansion of Xbox Game Pass subscriptions. Search and news advertising revenue, excluding traffic acquisition costs, saw a significant 21% increase, driven by higher revenue per search and increased search volume across platforms like Edge and Bing.
The segment also achieved a 21% increase in operating income, indicating improved profitability. These results underscore Microsoft’s ability to drive growth in its consumer-facing businesses, leveraging its diversified portfolio to navigate market challenges.
Key analyst questions
During Microsoft’s Q3 FY2025 earnings call, analysts posed several questions regarding the company’s strategic direction, particularly focusing on AI demand, data centre investments, and capital expenditure plans. Here are some key discussions:
1. AI demand and data centre strategy. Analysts inquired about Microsoft’s data centre commitments in light of strong AI demand. CFO Amy Hood emphasized that while AI demand is robust, the notable outperformance in Azure this quarter was primarily driven by non-AI services. The AI segment met expectations, with the upside attributed to early delivery of capacity to certain customers. Hood also mentioned that Microsoft is experiencing some AI capacity constraints beyond June, indicating the need for continued infrastructure expansion.
2. Capital expenditures and infrastructure investments. Regarding capital expenditures, analysts questioned the sustainability of Microsoft’s significant investments in AI infrastructure. Hood responded that the company expects capital expenditures to continue growing in fiscal 2026, albeit at a slower rate than in FY2025. She noted a strategic shift towards a greater mix of short-lived assets, such as servers and networking equipment, which are more directly correlated to revenue generation. This approach aims to balance long-term infrastructure growth with near-term monetization opportunities.
3. Windows OEM and Devices Performance. Questions were raised regarding the modest 3% year-over-year growth in Windows OEM and Devices revenue. Hood explained that this growth was partially impacted by elevated inventory levels due to tariff uncertainties.
The fifth perspective
Microsoft’s Q3 FY2025 performance reflects its broad-based strength across each segment contributing to solid revenue and earnings growth. As it deepens AI integration and scales global infrastructure, Microsoft appears well-positioned to sustain its momentum across its diverse business lines.
