Microsoft Q3 2025 Earnings: AI, Cloud Sales Grow Despite Global Economic Uncertainty, Partner Improvements Continue

‘We still have some work to do in our scale motions,’ Microsoft CFO Amy Hood said.

Economic uncertainty due to global tariffs didn’t spoil gains by Microsoft in the artificial intelligence market, with the vendor reporting growth across a variety of AI products–but the vendor appeared to still grapple with work done alongside solution providers.

Amy Hood, CFO for the Redmond, Wash.-based AI, cloud and productivity applications giant, told analysts on Microsoft’s quarterly earnings call Wednesday that “we still have some work to do in our scale motions”–which Hood previously described as customers reached through partners and indirect sales.

Hood said “things were a little better” during the vendor’s third fiscal quarter, ended March 31, compared to the prior one. During the call, she said Microsoft’s “results exceeded expectations driven by focused execution from our sales and partner teams.”

“We’re encouraged by our progress,” she said. “We’re excited to stay focused on that as, of course, we work through the final quarter of our fiscal year.”

Microsoft saw “good, consistent work on (cloud) migrations” and “good execution by the sales and partner teams” as part of its third quarter successes.

Microsoft Q3 2025

Should the economy have a negative impact on customers, Microsoft CEO Satya Nadella said the vendor can rely on its efficiencies in cloud, differentiated software-as-a-service (SaaS) applications and infrastructure to help them.

“If you sort of buy into the argument that software is the most malleable resource we have to fight any type of inflationary pressure or any type of growth pressure where you need to do more with less, I think we can be super helpful with that,” Nadella said.

Hood called out Microsoft’s Windows, original equipment manufacturer (OEM) and devices revenue as performing “ahead of expectations,” with a 3 percent increase year over year “as tariffs uncertainty through the quarter resulted in inventory levels that remained elevated.”

Microsoft AI Growth

When asked on the call about pull-in of non-AI Azure revenue by Azure AI, Hood said that “it’s getting harder and harder to separate what an AI workload is from a non-AI workload” in Azure.

“Digital natives build workloads,” she said. “They do AI work. They do non-AI work. Do they tend to do that work in the same cloud? Lots of times. Sometimes, is it all in the same place? Not all the time. But that relationship gets stronger and stronger as people pivot to more of AI-heavy workloads. … We’ll continue to see that as AI workloads continue to get built and experimented with and proofs of concept get expanded.”

Hood said that Microsoft was “able to deliver supply early to a number of customers” in the AI side of its Azure cloud business, although the majority of Azure’s out performance in the quarter was on the non-AI side of the business.

CEO Nadella gave solution providers plenty of talking points around the growing use of a variety of the vendor’s products in AI, data and cloud.

Among the growth in AI products Nadella shared:

The Azure AI Foundry application and agent development hub is now used by developers at over 70,000 enterprises and digital-native companies
Microsoft processed more than 100 trillion tokens this quarter, up fivefold year over year, including a record 50 trillion tokens in March alone
Four months in, more than 10,000 organizations have used Microsoft’s Azure AI Agent Service to build, deploy and scale agents
Microsoft’s Phi small language models (SLMs) have been downloaded 38 million times
The code review agent in GitHub Copilot has reviewed more than 8 million requests
GitHub Copilot now has more than 15 million users, up over fourfold year over year
Microsoft 365 Copilot has “hundreds of thousands” of customers worldwide, with use up threefold year over year
Copilot’s “overall deal size continues to grow,” and this quarter Microsoft “saw a record number of customers returning to buy more seats”
More than 230,000 organizations, including 90 percent of the Fortune 500, have used Copilot Studio
This quarter, customers created more than 1 million custom agents across SharePoint and Copilot Studio, more than double quarter over quarter
Last quarter, Dragon Copilot helped document nearly 9.5 million physician-patient encounters at health care providers, up more than 50 percent quarter over quarter

Microsoft Cloud Acceleration

Nadella called Azure “the cloud of choice for customers’ mission-critical VMware, SAP and Oracle workloads, with more regional availability than any other hyperscaler.”

Nadella did not specifically share whether Microsoft is seeing heightened migration activity from VMware customers to Azure products to avoid price changes by the legacy virtualization vendor–a trend multiple Microsoft solution providers and ISV partners have shared with CRN.

He said “classic” cloud migration to products such as Windows Server has “good, steady-state progress,” with data center cloud migrations “because of the efficiency the cloud provides.”

Microsoft saw “healthy” core compute consumption by cloud-native players in the quarter and looking ahead, he said.

Growth in Microsoft data products included:

PostgreSQL usage accelerated for the third consecutive quarter, and it is now used by nearly 60 percent of the Fortune 500
Microsoft Fabric has more than 21,000 paid customers, up 80 percent year over year
Real-Time Intelligence is now the fastest-growing workload in Fabric, with 40 percent of customers using it five months after general availability
More than 50 percent of Fabric customers use three or more workloads
The amount of data in Microsoft’s multi-cloud data lake, OneLake, has grown more than sixfold over the past year
Visual Studio and VS Code have more than 50 million monthly active users
Power Platform now has 56 million monthly active users, up 27 percent year over year
Windows 11 commercial deployments increased nearly 75 percent year over year as Microsoft continues to eye October for Windows 10 end of support

And in security:

Microsoft now has 1.4 million security customers
More than 900,000 of those security customers have four or more workloads, up 21 percent year over year
Microsoft’s Entra identity offer now has more than 900 million monthly active users
Use of Databricks and Snowflake on Azure grew, although Nadella did not break out specific numbers

For watchers of quantum computing as the next technology revolution, Nadella said the vendor is “putting our quantum stack on machines from our partners” and “making real progress on a path to a utility-scale quantum computer with the introduction of Majorana 1,” Microsoft’s quantum chip unveiled in February.

Microsoft Still Investing In Data Centers

Microsoft’s leaders told analysts on the call that the vendor is full speed ahead on data center investments to meet demand in AI and cloud, making sure they only build to meet future workload growth.

“The reality is, we’ve always been making adjustments to build, lease, what pace we build (data centers), all through the last 10-to-15 years,” Nadella told analysts on the call. “It’s just that you all pay a lot more attention to what we do quarter over quarter nowadays.”

During the quarter, Microsoft opened data centers in 10 countries across four continents, Nadella said.

Hood said that data center build-outs can have lead times of five-to-seven years and that Microsoft considers capital expenditures carefully and the vendor still has more demand compared to capacity.

Microsoft’s capital spending to catch up in the cloud market is paying off in AI, Hood said. “One thing that’s a little different this time is just the pace,” she said. “Pace in terms of the efficiency side, but also pace in terms of the build out, so it can mask some of the progress. But we are working hard across all of the teams–hardware, software, even the build teams–to get things in place as quickly as possible.”

Microsoft’s AI margins “are better than they were at this point, by far, than when we went through the same transition in the server-to-cloud transition,” she said.

Microsoft Q3 In Depth

Microsoft reported $70.1 billion in revenue for the quarter, up 15 percent year over year ignoring foreign exchange.

The vendor’s operating income of $32 billion marked a 19 percent increase year over year. Net income of $25.8 billion was a 19 percent increase.

Microsoft Cloud revenue was $42.4 billion, up 22 percent year over year ignoring foreign exchange, according to the vendor.

Going by segment, Microsoft’s productivity and business processes (PBP) business–which includes Microsoft 365, LinkedIn and Dynamics–brought in $29.9 billion during the quarter. That marks a 13 percent increase year over year ignoring foreign exchange.

M365 Commercial products and cloud services revenue grew 14 percent year over year. M365 Commercial cloud in particular grew 15 percent.

Dynamics products and cloud services revenue grew 13 percent year over year. Dynamics 365 revenue grew 18 percent.

In Microsoft’s “intelligent cloud” (IC) segment–which includes Azure–the vendor saw $26.8 billion in revenue, a growth of 22 percent year over year ignoring foreign exchange.

Azure and other cloud services revenue grew 35 percent year over year. Server procuts and cloud services revenue grew 24 percent.

Microsoft’s final segment, “more personal computing” (MPC)--which includes devices, Xbox, search and news advertising–grew 7 percent year over year, hitting $13.4 billion. Windows original equipment manufacturer (OEM) and devices revenue grew 3 percent.

Microsoft stock traded at about $420 a share Wednesday after market close, up about 7 percent.