Microsoft (MSFT) delivered a standout performance in Q3 FY25, with broad-based strength across its portfolio and continued momentum in cloud and AI services. Revenue rose 13% year-over-year to $70.07 billion, while gross margin climbed 11% to $48.15 billion. Operating profitability also saw a solid boost, with operating income increasing 16% to $32.00 billion and net income surging 18% to $25.82 billion, resulting in diluted earnings per share of $3.46, also up 18% year-over-year.

A key growth driver was Microsoft Cloud, which posted $42.4 billion in revenue, marking a 20% increase year-over-year, powered by robust demand for Azure, whose revenue jumped 33%, with nearly half that growth fueled by AI workloads. However, cloud gross margins dipped to 69%, down 3 points, as Microsoft scales up its AI infrastructure.

Each operating segment contributed to the quarter’s strength. Productivity & Business Processes revenue rose 10% to $29.94 billion, led by Microsoft 365’s growth across commercial and consumer channels. Intelligent Cloud revenue surged 21% to $26.75 billion, with operating income up 17%. Meanwhile, More Personal Computing revenue increased 6% to $13.37 billion, with operating income up a notable 21%, aided by 21% growth in search and news advertising, and over 45% growth in PC Game Pass revenue.

Commercial metrics were particularly strong, with commercial bookings up 18%, boosted by a major Azure deal with OpenAI, and commercial remaining performance obligation climbing 34% to $315 billion. Microsoft’s aggressive investment in AI infrastructure continues, with capital expenditures at $21.4 billion, and free cash flow at $20.3 billion. Shareholder returns totaled $9.7 billion, up 15% year-over-year, through dividends and buybacks.

Other highlights included LinkedIn revenue rising 7%, Dynamics 365 growing 16%, and a thriving security business with 1.4 million customers, and 21% growth in users adopting four or more workloads. Advertising across Microsoft’s ecosystem topped $20 billion over the past 12 months.

Looking ahead, Microsoft forecasts strong Q4 growth across cloud and business applications, with Azure expected to grow 34–35% in constant currency, though AI capacity constraints could temper upside in the near term. Operating margins are projected to rise slightly for the full fiscal year, and CapEx will increase in Q4, albeit with a more measured growth rate into FY26.

CEO Satya Nadella emphasized the role of AI and cloud as foundational technologies reshaping industries, while CFO Amy Hood noted strength in both AI and non-AI workloads, pointing to efficiency gains and sustained investment in infrastructure. Microsoft’s ongoing alignment of AI innovation with cloud growth positions it for continued leadership in the digital transformation landscape.