Microsoft earnings preview: After a $357B wipeout, tech giant gets another chance

The last time Microsoft reported earnings, it seemed to do everything right, at least by the traditional metrics. Revenue was up 17%, profits soared 24%, and the company’s closely watched Azure cloud business beat internal forecasts. 

And then it got absolutely punished.

Microsoft’s stock dropped 10% the next day, wiping out $357 billion in market value. Investors looked past the traditional numbers, focusing on the company’s record $37.5 billion in quarterly capital spending, an AI revenue backlog heavily dependent on OpenAI, and a Copilot product that had reached just 3.3% of Microsoft 365’s commercial base.

The stock still hasn’t recovered, finishing last week down 22% from its 52-week high.

On Wednesday, Microsoft gets another chance, reporting its fiscal Q3 results after the market closes. Here’s a preview of the key numbers and storylines to watch.

Core earnings estimates: Analysts expect Microsoft to report revenue of about $81.4 billion, up 16% from a year ago, and earnings of $4.06 per share, up 17%, according to Yahoo Finance. Microsoft has beaten Wall Street’s estimates four quarters in a row.

Cloud expectations: Microsoft has said it expects Azure to grow 37% to 38% in constant currency (adjusted for fluctuations in exchange rates) in Q3. That would be a slight slowdown from the 38% it posted in Q2. Last time, Azure beat Microsoft’s own forecast but fell short of what analysts were privately expecting, a major factor in the historic stock plunge.

But the Azure number doesn’t tell the full story. CFO Amy Hood said on the last earnings call that if Microsoft had allocated all the GPUs it brought online in Q1 and Q2 solely to Azure (i.e., the company’s cloud customers), the growth rate would have been over 40%. 

Instead, the company split that capacity across Azure and its own products and operations, including Copilot, GitHub Copilot, and internal R&D. That means Azure growth is as much a reflection of how Microsoft chooses to allocate its resources as it is a measure of demand. 

A leaner Microsoft: Even in just the past few months, Microsoft has moved to cut costs and streamline its operations even as it continues to spend aggressively on AI infrastructure — attempting to demonstrate to Wall Street that it’s staying disciplined on operating expenses. 

• The company offered voluntary retirement to thousands of employees for the first time in its 51-year history, targeting workers whose age plus years of service total 70 or more. Hood is expected to discuss the financial details of the program on the earnings call.
• It flattened its management layers and overhauled its compensation structure, reducing the number of pay points from nine to five and decoupling stock awards from bonuses.
• Cloud and sales teams were put under spending and hiring freezes.
• Several senior execs announced their retirement, including Experiences and Devices chief Rajesh Jha, Developer Division leader Julia Liuson, and Xbox chief Phil Spencer. 

Capital spending: Microsoft is on pace to spend more than $100 billion on infrastructure in fiscal 2026, up from $88.7 billion the year before, mirroring spending surges across Big Tech. About two-thirds goes to GPUs and other hardware for AI and cloud workloads. 

Hood said capex spending would come down from the Q2 figure of $37.5 billion in the last quarter, but it will still be far above the company’s historical levels. Investors will be watching for any signal about whether the pace of spending is set to continue, level off, or accelerate. 

Copilot and AI monetization: Microsoft disclosed in January that its Copilot product had reached 15 million paid seats, roughly 3.3% of the Microsoft 365 commercial base of about 450 million, which has since been cited repeatedly as an example of the company falling short.

At $30 per user per month, Copilot represents a large revenue opportunity if adoption accelerates, and any new disclosures about overall usage will make big headlines. If the company doesn’t disclose this number in the new report, it could be telling, as well.

Microsoft’s contracted future revenue more than doubled to $625 billion last quarter, but about 45% of that was tied to OpenAI, thanks to the company’s renegotiated partnership with the ChatGPT maker, raising questions about risk of so much revenue connected to one company.

William Blair analyst Jason Ader noted after last quarter that Microsoft’s contracted future revenue still grew 28% after stripping out OpenAI, and that new contract signings surged 228%.

Microsoft CEO Satya Nadella also introduced a new metric last quarter: “tokens per watt per dollar,” a measure of how much AI output the company gets for each unit of energy and capital it invests. He didn’t give an overarching number, but as an example, Nadella said Microsoft was able to process 50% more OpenAI workload on the same amount of infrastructure as before. 

The bigger picture: Not everyone is pessimistic. Wedbush analyst Dan Ives, in two notes to clients last week, argued that the market is underestimating cloud growth and that fears about OpenAI and Anthropic displacing the big cloud providers are overblown. 

Ives pointed to more than $650 billion in combined AI infrastructure spending from Microsoft, Google, Amazon, and Meta in 2026, and estimated $3 trillion in enterprise and government AI spending over the next three years. He called the recent sell-off a buying opportunity. 

ServiceNow, a major enterprise software company, saw its stock drop 17% on its own quarterly results last week, a sign that business technology spending may be softer than expected. 

But Intel surged more than 20% after strong earnings, driven by a 22% jump in data center and AI revenue, a sign that demand for the computing infrastructure behind AI is broad-based. 

Earnings avalanche: Amazon, Google, and Meta all report the same afternoon as Microsoft, which means investors will be comparing Azure, AWS, and Google Cloud growth in real time. 

Check back Wednesday afternoon for coverage.