Microsoft (MSFT) Q3 2025 earnings summary

Executive summary

• Revenue for Q3 FY2025 reached $70.1B, up 13% year-over-year, with net income of $25.8B and diluted EPS of $3.46, both up 18%.

• Microsoft Cloud revenue grew 20% year-over-year (22% in constant currency) to $42.4B, driven by Azure and AI demand.

• Operating income rose 16% to $32.0B, with margin expansion in More Personal Computing.

• Activision Blizzard acquisition completed in October 2023, boosting Gaming revenue and segment results.

• Continued innovation and expansion in AI, developer tools, business applications, security, and gaming.

Financial highlights

• Gross margin was $48.1B, up 11% year-over-year, with gross margin percentage at 69%, down due to AI infrastructure scaling.

• Free cash flow was $20.3B, with cash flow from operations at $37.0B, up 16% year-over-year.

• Returned $9.7B to shareholders via dividends and buybacks in Q3 2025.

• Capital expenditures were $21.4B for the quarter, with $47.5B in the nine months ended March 31, 2025, primarily for datacenter and AI infrastructure.

• Research and development expenses were $8.2B, sales and marketing $6.2B, and G&A $1.7B for Q3 2025.

Outlook and guidance

• Q4 revenue guidance: Productivity and Business Processes $32.05–$32.35B, Intelligent Cloud $28.75–$29.05B, More Personal Computing $12.35–$12.85B.

• Azure Q4 revenue growth expected at 34–35% in constant currency; some AI capacity constraints anticipated beyond June.

• FY2025 operating margins expected to be up slightly year-over-year despite ongoing AI investments.

• Approximately 40% of $321B in remaining performance obligations expected to be recognized as revenue in the next 12 months.

• Management expects existing liquidity and cash flows to fund operations, investments, and shareholder returns for at least the next 12 months.