#Microsoft Posts $37B AI Run Rate, Up 123% as Cloud Drives Q3 Beat
Microsoft Corporation (NASDAQ: MSFT) reported fiscal third-quarter 2026 revenue of $82.9 billion on April 29, announcing that its AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year.
The result extended a stretch of accelerating cloud and AI revenue growth for the Redmond, Washington-based company. Microsoft competes directly with Amazon Web Services and Google Cloud in enterprise cloud infrastructure, a market that has seen sustained demand from corporate AI adoption over the past two years.
#Azure Revenue Climbs 40% as Cloud Segment Crosses $34.7 Billion
Revenue in the Intelligent Cloud segment, which includes Azure, reached $34.7 billion for the quarter, up 30% year-over-year (28% in constant currency). Azure and other cloud services revenue increased 40% (39% in constant currency), the fastest-growing line across Microsoft's three reporting segments.
Microsoft Cloud revenue overall reached $54.5 billion, up 29% (25% in constant currency). The company's commercial remaining performance obligation -- contracted future revenue not yet recognized -- rose 99% to $627 billion, reflecting the volume of multi-year enterprise agreements signed during the period.
#Productivity and Personal Computing Segments Post Divergent Results
Revenue in Productivity and Business Processes reached $35.0 billion, up 17% (13% in constant currency). Microsoft 365 Consumer cloud revenue grew 33% (29% in constant currency), while Microsoft 365 Commercial cloud revenue increased 19% (15% in constant currency).
Dynamics 365 revenue rose 22% (17% in constant currency). LinkedIn revenue increased 12% (9% in constant currency).
More Personal Computing, which includes Windows, Xbox, and search advertising, posted revenue of $13.2 billion, a decline of 1% (down 3% in constant currency). Xbox content and services revenue fell 5% and Windows OEM and Devices revenue declined 2%. Search advertising revenue, excluding traffic acquisition costs, rose 12%.
#Net Income Rises 23% as Operating Leverage Holds
Operating income was $38.4 billion, up 20% year-over-year. Net income reached $31.8 billion, up 23% on a GAAP basis. Diluted earnings per share were $4.27, also up 23%.
Non-GAAP figures, which exclude the impact of Microsoft's investment in OpenAI, showed net income of $31.8 billion and diluted EPS of $4.27. The OpenAI investment had minimal impact in the quarter, reducing net income by $14 million, compared with a $583 million reduction in the prior-year period.
"We delivered results that exceeded expectations across revenue, operating income, and earnings per share, reflecting strong execution and growing demand for the Microsoft Cloud," Amy Hood, executive vice president and chief financial officer of Microsoft, said in the earnings release.
Microsoft returned $10.2 billion to shareholders during the quarter through dividends and share repurchases.
The company's capital expenditure also rose sharply. Additions to property and equipment totaled $30.9 billion in the quarter, up from $16.7 billion in the same period a year earlier, reflecting continued investment in data center infrastructure.
Microsoft said forward-looking guidance would be provided on its earnings conference call. Risks to the outlook include intense competition in cloud and AI markets, execution risk from significant capital investment, regulatory scrutiny, cyberattack exposure, and macroeconomic conditions affecting enterprise spending.