Key Takeaways:
- Microsoft beat earnings estimates with $83 billion in quarterly revenue.
- The Copilot AI service now has over 20 million paid seats.
- Future demand remains massive with $627 billion in remaining performance obligations.
Microsoft on Wednesday reported third-quarter earnings that beat Wall Street estimates, driven by a 123% year-over-year surge in its artificial intelligence business, which reached a $37 billion annual revenue run rate.
AI Growth Drives Strong Earnings Beat
Microsoft reported earnings per share of $4.27 on revenue of $82.89 billion, exceeding analysts’ expectations of $4.04 EPS and $81.46 billion in revenue, according to the Microsoft Q3 earnings 2026 report.
The company’s AI segment continued to fuel growth, with its annual revenue run rate climbing to $37 billion. CEO Satya Nadella said the company’s investments in AI tools and infrastructure are translating into rapid adoption across enterprise customers.
Microsoft’s Copilot service, a key AI offering, surpassed 20 million paid seats, up from 15 million in the previous quarter. The company also reported remaining performance obligations of $627 billion, a 99% increase year over year, signaling strong future demand.
Stock Slips Despite Strong Results
Shares of Microsoft fell more than 1% after initially rising following the earnings release. Analysts pointed to investor concerns about shifting dynamics in Microsoft’s AI partnerships and broader market expectations.
Earlier this week, Microsoft said it had restructured its agreement with OpenAI. Under the revised terms, Microsoft will no longer make revenue-sharing payments to OpenAI, though it will continue to receive payments from the AI firm.
However, the company also acknowledged it has lost exclusive access to OpenAI’s intellectual property. OpenAI can now distribute its models to other cloud providers, potentially increasing competition for Microsoft’s Azure platform.
“While the financial performance is strong, investors are focused on long-term competitive positioning in AI,” said a technology analyst familiar with the matter.
Core Businesses Show Steady Growth
The latest Microsoft Q3 earnings 2026 report shows that the company’s core business segments posted solid results. The Productivity and Business Processes division generated $34.7 billion in revenue, slightly above expectations, while the Intelligent Cloud segment reported $34.68 billion, also beating forecasts.
The More Personal Computing segment, which includes Windows and devices, brought in $13.2 billion, surpassing estimates of $12.64 billion.
Microsoft said it spent $31.9 billion on capital expenditures during the quarter, with roughly two-thirds allocated to assets such as GPUs and CPUs to support its expanding AI infrastructure.
The broader PC market remains under pressure due to a global memory shortage tied to increased data center demand. Industry group International Data Corporation expects global PC shipments to decline 11.3% this year, as manufacturers raise prices or scale back lower-cost models.
Microsoft reported $3.46 EPS and $70.06 billion in revenue during the same period last year, underscoring the company’s strong year-over-year growth.
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