Microsoft delivers a promising quarter but can't shake the software fears

An important development from the financial markets: Microsoft on Wednesday reported better-than-expected quarterly results and issued a strong forecast for its all-important Azure cloud unit. But key debates hanging over the stock weren't put to bed, resulting in a muted reaction in extended trading. Here's a look at some of the key metrics in Microsoft's fiscal 2026 third quarter versus the Wall Street consensus: Revenue in the three months ended in March rose 18% year over year to $82.

89 billion, beating the LSEG consensus estimate of $81. Earnings per share (EPS) totaled $4. 4% from a year earlier, topping the $4.

Economic Details

06 consensus, according to LSEG. Azure cloud revenue growth on a constant currency basis came in at 39%, versus the FactSet consensus of 38%. On a reported basis, Azure cloud revenue was up 40%, ahead of the FactSet consensus of 39%.

MSFT 1Y mountain Microsoft's stock performance over the past 12 months. Bottom line Let's call it a step in the right direction. There were some positives, led by the Azure growth guidance for the current quarter.

But there were also some reminders about why Microsoft had become such a battleground stock in the first place — in particular, concerns about the viability of highly profitable seat-based software business models. With all these puts and takes, it's not surprising to see the stock oscillating between modest gains and losses in after-hours trading on Wednesday night. Microsoft was beloved in the early days of the generative AI boom, thanks to its close ties to ChatGPT creator OpenAI.

Analyst Views

But the shine has faded, rendering Microsoft the worst-performing stock in the "Magnificent Seven" over the past six months. It's tested our patience and that of plenty of other longtime shareholders, too. Among the reasons for the stock's poor performance: Microsoft's reliance on OpenAI for Azure growth came to be viewed as a weakness rather than a weapon.

At the same time, the market wondered whether Microsoft was leaving Azure growth on the table as it ran into capacity constraints. Skepticism also mounted about the quality of Microsoft's Copilot AI assistant as rivals like startup Anthropic were showered with praise for their tools. Additionally, concerns about "AI eating software" have been a major overhang on Microsoft and its industry peers.

These debates were not solved on Wednesday night, even if some clarity was gained. The positives: Microsoft expects Azure growth for the three months ended in June to be between 39% and 40%, compared to the FactSet consensus of roughly 37%. Microsoft also signaled that it's ramping up its capital expenditures to bring more AI computing capacity online.

Financial markets are tracking the development closely as investors assess the likely impact.