Microsoft Corp.’s stock gained more than 7% in late trading today after it beat expectations in its latest financial results thanks to strong growth in the cloud, and followed up with encouraging guidance for the current quarter.

The company reported third-quarter earnings before certain costs such as stock compensation of $3.46 per share, easily beating Wall Street’s consensus estimate of $3.22 per share. Revenue for the period rose 13%, to $70.07 billion, surpassing the analyst’s forecast of $68.42 billion.

That resulted in net income of $25.8 billion overall, up slightly from the $21.9 billion profit recorded by the company in the same period last year.

Looking to the current quarter, Microsoft said it’s anticipating sales of between $73.15 billion and $74.25 billion, with the midpoint of that range coming in higher than the Street’s $72.26 billion forecast. Officials are also looking for the Azure cloud infrastructure business to grow by 34% to 35% in constant currency terms, faster than the Street’s target of 31.5% growth.

Microsoft Chief Financial Officer Any Hood told analysts on a conference call that the company is expecting its capital expenditures to increase in the new fiscal year, but that growth will be slower than the current fiscal 2025 year. She said the company anticipates an operating margin of 43.35% in fiscal 2026, just a tad lower than the Street’s target of 43.5%.

The strong guidance provides considerable relief to investors, who will have been watching the company’s forecast for clues on how much the company expects to suffer from U.S. President Donald Trump’s sweeping tariffs.

Earlier this year, Microsoft Chief Executive Satya Nadella (pictured) said the company is looking to spend about $80 billion on building data centers for artificial intelligence workloads. Such investment will require enormous imports of equipment from overseas, and so its costs could increase significantly as a result of those tariffs.

During the quarter just gone, the company spent $16.75 billion on capital projects, with the bulk of that money going to new data center projects. That’s up 53% from the year before, and ahead of the analyst forecast of $16.37 billion.

Microsoft said the Azure cloud computing business saw revenue grow 33% in the quarter, with 16 points of that growth thanks to rising demand for its AI services.

Three months earlier, Microsoft told analysts that it had been held back by disappointing execution with some clients in terms of non-AI Azure workloads. But Hood said the company saw an improvement here during the quarter. “Things were a little better, and we still have some work to do in our scale motions, and we’re encouraged by our progress,” she insisted.

She added that Microsoft has managed to bring new infrastructure capacity online much faster than it had hoped for, helping to improve the situation.

Microsoft’s Intelligent Cloud business, which includes revenue from Azure, delivered $26.75 billion in sales, up 21% from a year earlier and above the consensus estimate of $26.12 billion. The company said it’s benefiting from increased adoption of its AI-powered Github Copilot assistant. More than 15 million customers are now using it regularly, compared with just over 3 million one year ago.

Valoir analyst Rebecca Wettemann said Microsoft’s progress in AI is encouraging, because it initially shot itself in the foot with its original Copilot offerings, which weren’t quite ready for prime time when they launched.

“Trust is critical to adoption with AI, and early copilot users learned they couldn’t be trusted – adding another hurdle to adoption and monetization,” Wettemann said. “With Salesforce, Oracle, ServiceNow and others putting AI agents in production at customer sites, Microsoft will need to catch up to gain more of the pie.”

Even so, Wettemann believes Microsoft is in a fortunate position versus many of its rivals, as its cloud infrastructure business means that it also benefits whenever its major competitors win. “Although Microsoft obviously doesn’t break out the numbers, it makes money when other vendors drive adoption of Azure cloud services through their SaaS and AI footprints that run on Azure – including ServiceNow, Genesys, Dayforce and others,” she added.

The Productivity and Business unit, which encompasses the Office suite and LinkedIn, saw revenue rise 10% to $29.94 billion, just beating the analyst target of $29.57 billion. Hood noted that LinkedIn’s Talent Solutions offering aimed at recruiters was “impacted by weakness in the hiring market.”

As for the More Personal Computing business, which includes Windows plus search advertising revenue and sales of devices and games consoles, it delivered $13.37 billion in sales, up 6% from a year earlier, beating the Street’s target of $12.66 billion.

Devices and Windows license sales rose 3% from a year earlier, even though inventory levels remain elevated due to the current economic uncertainty, Nadella said on the call. Microsoft is planning to end support for the older Windows 10 operating system, which was launched in October 2015, at the end of October. So enterprises are now racing to switch to Windows 11, with deployments of that software increasing by 75% in the quarter.

“We continue to see increased commercial traction as we approach end of support for Windows 10,” Nadella said.

Holger Mueller of Constellation Research Inc. said Microsoft is firing on all cyclinders, with all of its business units growing decently, even the “often lukewarm” Windows segment.

“The major concern is LinkedIn, where growth fell back into the single digits,” he said. “That’s surprising as talent acquisition remains central and important for enterprises. But overall, it was a good quarter, and Microsoft is on track to bring its operating income up to 50% of total revenue by the end of the current quarter.”

During the quarter, Microsoft provided an update on its close relationship with OpenAI, saying that it has the first right of refusal to cater to it anytime it needs more computing capacity. However, it may not always deliver that extra capacity, and if that happens, OpenAI will then be able to seek out other cloud partners.

Despite the after-hours jump, Microsoft’s stock is still down just over 6% in the year to date.

Image: Microsoft/livestream