Microsoft tops Q3 estimates, says AI business up 123% year over year
On April 30, 2026, Microsoft Corporation (MSFT) reported its third-quarter earnings, exceeding analysts’ expectations both in terms of revenue and earnings per share (EPS). The tech giant revealed significant growth in its artificial intelligence (AI) business, which has seen a remarkable 123% increase year over year, now boasting an annual revenue run rate of $37 billion.
Financial Highlights
For the third quarter, Microsoft reported:
- Earnings Per Share (EPS): $4.27
- Total Revenue: $82.89 billion
- Analyst Expectations: EPS of $4.04 on revenue of $81.46 billion
This performance has led to a slight decline of 1% in premarket trading as investors began to assess the implications of the report.
Growth in AI Business
Microsoft’s AI business has been a focal point of its growth strategy. The company announced that its Copilot service has surpassed 20 million paid seats, a significant increase from the 15 million reported in the previous quarter. This growth is indicative of the rising demand for AI-driven solutions across various sectors.
Partnership with OpenAI
In a notable update, Microsoft restructured its agreement with OpenAI, eliminating the need for revenue-sharing payments to the AI startup. Instead, OpenAI will now make payments to Microsoft. This shift allows Microsoft to retain access to OpenAI’s technology while also enabling OpenAI to collaborate with other cloud partners beyond Microsoft Azure.
Segment Performance
Microsoft’s revenue was driven by its various business segments:
- Productivity and Business Processes: $34.7 billion (slightly above the projected $34.48 billion)
- Intelligent Cloud: $34.68 billion (exceeding Wall Street expectations of $34.31 billion)
- More Personal Computing: $13.2 billion (compared to expectations of $12.64 billion)
The company also reported remaining performance obligations (RPO) of $627 billion, marking a 99% increase year-over-year. Excluding OpenAI, RPO grew by about 26%, aligning more closely with seasonal averages.
Challenges in the PC Market
Despite the positive financial results, Microsoft is facing challenges in the PC market. The More Personal Computing segment has been affected by a global memory shortage, which has led manufacturers to raise prices or eliminate low-cost models, impacting overall sales. According to the International Data Corporation (IDC), global PC shipments are expected to decline by 11.3% in 2026.
Capital Expenditures and Future Outlook
In the third quarter, Microsoft reported capital expenditures of $31.9 billion, with approximately two-thirds allocated to assets such as GPUs and CPUs. Looking ahead, the company anticipates:
- Q4 Capital Expenditures: $40 billion
- Full-Year 2026 Capital Expenditures: $190 billion
Despite these investments, Microsoft expects to remain capacity constrained through 2026, which could impact its ability to meet growing demand in the AI and cloud sectors.
Conclusion
Microsoft’s third-quarter results reflect a strong performance, particularly in its AI business, which continues to be a significant growth driver. The restructured partnership with OpenAI and the increase in paid seats for its Copilot service are promising indicators of future success. However, challenges in the PC market and capacity constraints may pose hurdles for the company moving forward. Investors will be keen to monitor how Microsoft navigates these challenges while continuing to capitalize on its strengths in AI and cloud computing.
Note: The information provided in this article is based on data available as of April 30, 2026, and is subject to change as new reports and updates become available.
