‘While the macro presents uncertainty, Microsoft appears poised to yield on GenAI investments which should support share gains and more durable growth ahead,’ Morgan Stanley said in a report.
At least for now, Microsoft solution providers should be seeing sustained demand for artificial intelligence and cloud products despite economic uncertainty over global tariffs.
That comes from the Redmond, Wash.-based tech giant’s latest quarterly earnings–reported Wednesday for the quarter ended March 31.
While the rest of Microsoft’s fiscal year–which ends June 30–reflects healthy demand based on multiple measures shared by company leaders, the second half of the 2025 calendar year is more opaque. Some of Microsoft executives’ comments on the call might give members of its 500,000-plus partner ecosystem pause–including continued improvements the vendor is trying to make in the partner program, a rarely mentioned topic in Microsoft earnings calls.
Microsoft Q3 2025
The vendor’s $70 billion, 15 percent revenue growth year over year bested Wall Street expectations by almost $2 billion, multiple analyst reports noted after the call. “While the macro presents uncertainty, Microsoft appears poised to yield on GenAI investments which should support share gains and more durable growth ahead,” the Morgan Stanley said in a report after the earnings call.
Some investment firms, including Bernstein, continued to see Microsoft as a leader in cloud and AI for the long run.
“Microsoft previously proved they can drive a valuable Cloud business, and now they are showing that they can drive both the Cloud and the largest AI business, via a combination of high quality Gen AI inferencing and Gen AI apps,” the firm said in a report after the earnings call.
Here are more takeaways for solution providers and other technology vendors after Microsoft’s third fiscal quarter earnings report.
Device Sales Bump, Cloud Demand Untampered
Microsoft demand in devices, cloud and AI appeared to weather any uncertainty caused by global tariffs.
Windows 11 commercial deployments increased nearly 75 percent year over year as Microsoft continues to eye October for Windows 10 end of support, CEO Satya Nadella said. Windows 10 EOS is expected to spur more device refreshes for solution provider customers, assuming global tariffs don’t push computer prices to untenable levels.
The vendor echoed Intel’s reported bump in sales in the most recent quarter by customers getting ahead of tariff price fears. Microsoft CFO 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’s cloud revenue growth of 22 percent year over year accelerated from 21 percent the prior quarter, and Azure’s overall 35 percent growth year over year smashed Wall Street’s 31 percent expectation and marked an acceleration quarter over quarter.
And Tariffs Didn’t Allay AI Demand
Azure AI revenue accelerated to more than 215 percent growth year over year and core Azure revenue growth accelerated from 19 percent in the third fiscal quarter to 21 percent in the most recent quarter, based on an estimate by Morgan Stanley.
Shaky performance in Azure last quarter led some analysts to speculate on whether Microsoft sees customers choosing generative AI work instead of cloud work as opposed to GenAI work also boosting cloud revenue–with the acceleration indicating a mutually beneficial relationship.
As Microsoft CFO Amy Hood said on Wednesday’s call, “it’s getting harder and harder to separate what an AI workload is from a non-AI workload” in Azure.
Microsoft CEO Nadella broke out a variety of growth metrics across the vendor’s AI product portfolio.
He revealed that the Azure AI Foundry application and agent development hub is now used by developers at over 70,000 enterprises and digital-native companies, that more than 10,000 organizations have used Microsoft’s Azure AI Agent Service to build, deploy and scale agents only four months into availability and that GitHub Copilot now has more than 15 million users, up over fourfold year over year.
And The Forecast Looks Sunny
Some of the results Microsoft leaders shared on the call suggested that demand for AI and cloud has staying power despite continued concern by businesses from a variety of industries around the impact of global tariffs, and going beyond data center demand by Microsoft-backed ChatGPT creator OpenAI.
Microsoft’s fourth fiscal quarter guidance between $73.15 billion and $74.25 billion, about 14 percent year over year, was higher than Wall Street expected, according to multiple analyst firms, reflecting that Microsoft expects continued outperformance as the world digests these tariffs.
The vendor’s expected fourth fiscal quarter revenue of about $32 billion for its productivity and business processes (PBP) business (which includes its Microsoft 365 suite of application such as Word, Teams and PowerPoint) and expected revenue of about $29 billion for its “intelligent cloud” (IC) segment (which includes Azure) both bested Wall Street expectations.
The expected Azure growth of about 35 percent year over year next quarter exceeds Wall Street expectation for about 30 percent.
Another measure of Microsoft’s continued AI and cloud confidence–sticking by its immense spending plans to meet demand.
Like Google last week, Microsoft reiterated its expected capital expenditures around AI and cloud, with Nadella and Hood telling analysts they continue to not have enough capacity to meet customer demand. Microsoft expects to spend about $45 billion in the second half of the year, 58 percent growth year over year.
Multiple analyst reports also pointed out good news in Microsoft shifting investment away from “long duration” assets such as land and concrete for building the data centers. Instead, expect more “shorter duration” assets such as server kits needed to turn customer demand into revenue, Microsoft’s leaders said on the call. This is good news for Microsoft solution providers still waiting for AI’s inflection point into a mainstream technology for businesses.
Should the economy worsen for Microsoft customers, Nadella expressed confidence in the vendor’s ability to “look to share gains”–perhaps an allusion to the vendor and its solution providers persuading customers to consolidate spending around Microsoft and away from competitors.
Good News With Caveats
The good results delivered by Nadella and Hood came with some caveats–and the pair shared some quarterly results that solution providers might need to monitor.
Hood called out that Microsoft’s fourth quarter forecast doesn’t assume negative impacts from tariffs, although, so far in April, demand has stayed strong. President Donald Trump has been imposing new tariffs on countries since February, with widespread tariffs unveiled April 2.
If the economy takes a major downturn over the next three months, Microsoft and its partner ecosystem might need to rethink how they work with customers.
Microsoft’s CFO was scant on details during the call for the 2026 fiscal year starting July 1. With only one quarter left in its 2025 fiscal year, Microsoft might not have needed “to bake in any potential prudence,” according to KeyBanc.
Microsoft Partner Issues Linger
Without going into much detail, Microsoft CFO Amy Hood indicated that issues in the vendor’s “scale motions”–which Hood previously described as customers reached through partners and indirect sales–continued but with improvement.
“We still have some work to do in our scale motions,” Hood said on Wednesday’s call, while also noting that “things were a little better.”
“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.” She added that Microsoft saw “good, consistent work on (cloud) migrations”–work often handled by solution providers–and “good execution by the sales and partner teams” as part of its third quarter successes.
Although not explicitly done as a reference to Hood’s comments, notably on Thursday Nicole Dezen, Microsoft’s chief partner officer and corporate vice president of the Global Partner Solutions organization, published a blog post calling out partner program updates meant to help Cloud Solution Provider (CSP) partners with renewals and updates.
Some of the updates include an option for three-year subscription terms and a channel transfers interface in Partner Center.
Some hints around Microsoft solution provider concerns emerged in surveys various investment firms conducted ahead of Microsoft’s earnings call. One example includes KeyBanc reporting “the worst Meets/Beats performance” by VARs since the first quarter of 2023, William Blair’s VAR survey showing “worry that AI deployment timelines could push out as customer urgency to act abates,” and Morgan Stanley reporting that “internal execution in the partner organization and Copilot product ramp” has impacted partners.