Microsoft Earnings: Azure Strength Powered by AI as Microsoft Races to Expand Data Center Capacity

Wide-moat Microsoft continues to deliver with strong third-quarter results, topping both our top- and bottom-line estimates. Given stronger near-term growth and profitability, we are raising our fair value estimate to $435 per share, from $420 previously. Results are impressive from most angles, but we highlight strength in AI, Azure, and gaming; a surge in bookings from large Azure deals; and robust margin performance despite downward pressure from the Activision acquisition are our key takeaways. Artificial intelligence remains the focal point and contributed 700 basis points to Azure growth. Management also provided a high-level preview for fiscal 2025 that included double-digit revenue growth and operating margin contraction of about 1 percentage point, which is consistent with our model. With shares trading up 4% after hours, they remain in 3-star territory.