Despite Microsoft's (MSFT -0.72%) continued strong operational performance over the past two years, its stock has basically been running in place. From the end of April 2024 to the end of April 2026, the stock is up only about 1%. The company's heavy reliance on OpenAI in its cloud business, together with getting thrown into the software-as-a-service (SaaS) loser bucket, has hindered its stock.
Let's dip into its fiscal Q3 results to see if the stock has the potential to finally break out from here.
Image source: The Motley Fool.
Azure continues to shine
Microsoft's cloud computing unit, Azure, once again shone, with revenue surging 40% (39% in constant currencies). It was the 11th straight quarter that Azure revenue has risen by 30% or more, as demand for compute power and artificial intelligence (AI) services continues to power results. It noted that demand continues to outstrip capacity, while annual recurring revenue (ARR) for its AI business soared 123% as customers adopt more AI solutions.
Bookings fell 46% in constant currencies but were up 26% when excluding OpenAI. Remaining performance obligations (RPOs), which include future Azure commitments, nearly doubled to $627 billion. It said about a quarter of these commitments will be recognized as revenue over the next year.
Microsoft's total revenue climbed by 18% year over year to $82.89 billion, with adjusted earnings per share (EPS) increasing 21% to $4.27. The results topped the analyst consensus for $81.39 billion in revenue and $4.06 in adjusted EPS, as compiled by LSEG.
Overall "intelligent cloud" revenue, where Azure and GitHub reside, jumped by 30% year over year to $34.7 billion. The company said GitHub was seeing "unprecedented growth driven by the proliferation of agentic coding." Meanwhile, it just announced that it would shift to a usage-based pricing model for GitHub Copilot.
Microsoft's productivity and business processes segment, home to Microsoft 365 and LinkedIn, saw revenue increase 17% year over year to $35 billion. Growth was strong across its four main solutions in the segment (in the table), led by a 33% jump in Microsoft 365 Consumer cloud revenue, helped by an earlier price increase. Meanwhile, it said seat additions to Microsoft 365 Copilots skyrocketed 250% to 20 million paid seats.
|
Product |
Q2 Revenue Growth (YOY) |
|---|---|
|
Microsoft 365 Commercial |
19% |
|
Microsoft 365 Consumer |
33% |
|
|
12% |
|
Dynamics |
22% |
Data source: Microsoft press release. YOY = Year over year.
Revenue in its "more personal computing" segment, where Windows and Xbox sit, fell by 1% year over year to $13.2 billion. Its search and news advertising business, also part of this segment, once again was a standout, with revenue up 12%. Windows OEM and device revenue, meanwhile, fell by 1%, while Xbox revenue dipped 5%.
Looking ahead, the company guided for fiscal 2026 Q4 revenue of between $86.7 billion and $87.8 billion, while analysts were looking for revenue of $87.25 billion. It expects Azure revenue to grow by between 39% and 40% in constant currencies.
NASDAQ: MSFT
Key Data Points
Is it time to buy the dip?
Microsoft continues to execute well. Azure remains its biggest growth driver, and given the huge commitments it has from OpenAI, it should continue to see outsized growth well into the future.
Meanwhile, the whole narrative that the company's software business could be an AI loser just isn't matching its strong numbers. Copilot growth for Microsoft 365 and GitHub are both soaring, signaling that the best way for most companies to implement AI solutions isn't directly but from established software vendors.
With its stock now trading at a forward price-to-earnings (P/E) ratio of 21.5 based on fiscal 2027 analyst estimates (ending June 2027), Microsoft's stock is cheap for the growth it is seeing and still has in front of it. Also, it has about a 27% stake in OpenAI as well. While investors may need to be patient, as there is no immediate catalyst to get the stock out of its doldrums, I do think this is a nice place to start building a position in the stock.
