Strong Q3 Results Outpace Expectations

Microsoft Corporation (NASDAQ:MSFT) shares jumped over 6% in after-hours trading Wednesday after the tech giant reported fiscal Q3 EPS of $3.46 on $70.1 billion in revenue—surpassing the $3.23 EPS and $68.53 billion analysts had forecast.

Azure and Intelligent Cloud Lead the Charge

• Azure growth: +33% YoY (consensus 30.3%), with AI workloads driving 16% of that surge

• Intelligent Cloud revenue: $26.75 billion (+21%), beating the $26.16 billion estimate

These figures underscore that AI remains a core growth vector for Microsoft's cloud business, quelling concerns that its recent data-center investment pullback signaled cooling demand.

Heavy CapEx Underpins AI Ambitions

Contrary to fears of underinvestment, Microsoft's Q3 capex (ex-leases) jumped 52.8% to $16.75 billion, reflecting an aggressive build-out of AI-optimized data centers. This level of spending signals confidence that long-term returns on cloud infrastructure will outweigh short-term margin pressure.

Valuation in an AI-Driven Transition

As investors model Microsoft's future cash flows amid accelerated AI adoption, scenario analysis becomes essential. Using Financial Modeling Prep's Advanced DCF API, analysts can adjust assumptions for Azure's AI revenue mix, capex intensity, and margin expansion to estimate a fair-value range under multiple macro and technology-uptake scenarios.

Next Catalysts to Watch

• CFO Commentary: Look for margin guidance as Q4 capex plans crystallize.

• AI Partnerships: New agreements or service launches that broaden Azure's enterprise footprint.

• Macro Data: Cloud spend tends to correlate with corporate IT budgets—upcoming IT spending surveys could impact sentiment.

By combining today's earnings beat with a rigorous DCF framework that factors in AI-driven growth, investors can more accurately gauge Microsoft's long-term value trajectory—beyond the immediate after-hours pop.