Track Hyper | Microsoft's Q3 performance for fiscal year 2025 exceeded expectations

Author: Zhou Yuan / Wall Street News

After the market closed on May 1st Eastern Time, Microsoft's financial report for the third quarter of fiscal year 2025 caused a stir in the global tech circle: it achieved revenue of $70.066 billion, a year-on-year increase of 13%, exceeding analysts' average expectation of $68.42 billion; recorded a net profit of $25.824 billion, a year-on-year increase of 18%; adjusted earnings per share were $3.46, while analysts expected $3.21, compared to $2.94 in the same period last year.

Among them, Azure cloud computing revenue was $26.8 billion, a year-on-year increase of 33%, surpassing the market expectation of 29%. Behind this data is the explosive growth in AI computing power demand combined with Microsoft's full-stack layout.

At the same time, Microsoft also released guidance for the next quarter, predicting strong growth for its Azure cloud business.

Microsoft expects fourth-quarter revenue to reach between $73.15 billion and $74.25 billion, higher than the market expectation of $72.26 billion; it anticipates Azure cloud business growth rates of 34%-35%, exceeding the market expectation of 31.5%.

After the earnings report was released, Microsoft's stock price surged 7.63% to $425.40, with a market capitalization returning above $3 trillion to $3.16 trillion, just a step away from Apple's $3.20 trillion market value.

In the wave of generative AI, the demand for computing power for enterprise-level large model training has shown exponential growth.

According to a Synergy report, the global cloud infrastructure service market size is expected to reach $330 billion in 2024, a year-on-year increase of 22%.

Microsoft seized this opportunity, deeply binding Azure cloud services with OpenAI's GPT-4, forming a differentiated advantage of "AI-native cloud."

The financial report shows that Azure processed over 1 trillion AI tokens this quarter, a fivefold year-on-year increase; the processing volume in March alone reached 50 trillion times.

This surge in computing power demand directly drove Azure's revenue growth rate to 1.7 times that of AWS (19%) and 94% of Google Cloud (35%).

Microsoft's business structure is divided into: Intelligent Cloud Division (including Azure), Productivity and Business Processes Division, and Personal Computing Division. The revenue share ranking of these three business segments is as follows: Productivity and Business Processes Division (42.73%), Intelligent Cloud Division (including Azure) at 38.20%, and Personal Computing Division (19.07%).

The Intelligent Cloud Division is the infrastructure of the AI era: it achieved $26.8 billion in revenue this quarter, accounting for 38.2% of total revenue. Among them, Azure and other cloud services grew by 33%, and server products grew by 22%.

The revenue growth in this segment during the third quarter was driven by three main factors.

First, the deepening of the hybrid cloud strategy, with Azure Arc helping enterprises achieve unified management of on-premises and cloud resources, attracting clients from industries such as finance and healthcare.

IDC data shows that the global hybrid cloud market size is expected to reach $124 billion in 2024, with Microsoft holding a 35% market share.

Second, the compliance advantages of government cloud services, with Azure's government cloud services covering key areas such as the U.S. Department of Defense and the UK's NHS The third driving force is Microsoft's breakthrough in self-developed chips. Microsoft's first AI chip, Maia 100, has been deployed in Azure data centers, and it is expected that the proportion of self-developed chips will increase to 50% by 2026, significantly reducing dependence on Nvidia.

The largest revenue segment for Microsoft this quarter is productivity and business.

The essence of this business is to reshape enterprise software with AI technology, achieving revenue of USD 29.94 billion this quarter, a year-on-year increase of 10%, accounting for 42.73%. Core growth comes from product upgrades driven by AI technology.

The most well-known AI feature in this business is Copilot. This AI application saw a significant increase in penetration this quarter.

Microsoft CEO Satya Nadella revealed during the Microsoft earnings call that the penetration rate of paid Copilot users has reached 35%, driving a 9% increase in ARPU (Average Revenue Per User, a key metric measuring the revenue contribution of a single user to the company over a specific period).

After the AI assistant was embedded in the Office suite, Microsoft 365 business subscriptions grew by 12%.

At the same time, Microsoft has promoted the implementation of AI applications in vertical industries: revenue from Microsoft Cloud for Healthcare in the healthcare sector grew by 58%, and financial industry solutions cover 80% of the top 20 banks globally.

Currently, Microsoft Teams has surpassed 350 million daily active users, and after integration with Dynamics 365, it achieved an average process automation efficiency improvement of 30% in the manufacturing industry.

Microsoft's third business segment is the personal computing division, which is relatively traditional and achieved slight growth this quarter. The market believes this may indicate signs of structural recovery: it achieved revenue of USD 13.37 billion, a year-on-year increase of 6%, accounting for 19.07%.

This recovery may be driven by a rebound in the PC market; the gaming ecosystem also expanded this quarter, with Xbox Game Pass subscribers surpassing 58 million, and cloud gaming services saw penetration rates rise to 18% in Japan and Southeast Asia.

Microsoft's application of AI technology in reshaping traditional businesses, such as the transformation of its advertising business, has also made positive progress: after integrating ChatGPT into the Bing search engine, ad clicks increased by 40%, and market share rose to 9.2%.

From the perspective of competition in cloud computing, Amazon Web Services (AWS) still holds the largest market share, but Microsoft Azure surpassed Amazon AWS's 19% growth with a year-on-year growth rate of 33%.

Microsoft attracts enterprise customers through its AI-first strategy, such as OpenAI's GPT-4 training relying on Azure supercomputing resources.

Notably, Google Cloud has achieved a differentiated competitive advantage in data analysis with the AI capabilities of Vertex AI and BigQuery.

According to global cloud infrastructure research firm Synergy Research Group's global cloud market data released on February 6 this year, global enterprise spending on cloud infrastructure services is projected to reach USD 91 billion in the fourth quarter of 2024, a year-on-year increase of 22% The market size of cloud infrastructure services is expected to reach USD 330 billion in 2024, an increase of USD 60 billion from 2023, representing a year-on-year growth of 22%.

On January 3rd, Brad Smith, Vice Chairman and President of Microsoft, announced in a blog post on the company's official website that "in fiscal year 2025, Microsoft is expected to invest approximately USD 80 billion to build artificial intelligence data centers to train AI models and deploy AI and cloud-based applications globally. More than half of the total investment will be in the United States."

Microsoft's quarterly financial report is not just a financial statement but also a barometer of competition in cloud computing during the AI era.

Azure's 33% growth rate far exceeds the industry average, validating Microsoft's "Intelligent Cloud + AI" strategy's strong combat effectiveness and competitiveness.

Despite facing price competition from Amazon AWS and geopolitical risks, Microsoft will still dominate the global cloud computing market due to its technological barriers and ecological advantages.

In the future, regarding Microsoft's business, how AI subscription conversion efficiency and data center investment strategies will be adjusted will determine whether Microsoft can maintain a cloud revenue growth rate of over 30% in 2025