Microsoft delivers strong Q3, Azure growth up 48%

Microsoft reported better-than-expected first quarter earnings as Microsoft Cloud revenue was $63.9 billion, up 30% from a year ago.

The company reported first quarter net income of $36.6 billion, or $4.92 a share, on revenue of $92.3 billion, up 19% from a year ago. Non-GAAP earnings were $4.89 a share.

Wall Street was expecting Microsoft to report fourth quarter earnings of $4.72 a share on revenue of $90.74 billion.

CEO Satya Nadella said the company is showing strong demand across its services.

By the numbers:

• Revenue from the Agents and Infra unit was $76.8 billion, up 25%.
• Azure revenue was up 48% from a year ago.
• Microsoft 365 commercial cloud revenue was up 18%.
• Devices and consumer revenue was down 3% from a year ago.

Nadella said the following on the earnings conference call:

• "We announced our biggest update to Copilot to date this quarter, bringing together Chat, Cowork, Autopilot and Code into one unified experience. It's one product experience across commercial and consumer and comes with all of Office built in. We think of Copilot as the new OS for work. Customers are increasingly turning to Copilot to get real work done. Automated tasks have nearly doubled since July. Daily users are up nearly 50% quarter-over-quarter and over 5x year-over-year. User satisfaction improved nearly 20% quarter-over-quarter to another all-time high. And 90% of Copilot queries use Auto mode, which dynamically routes tasks across models optimizing for quality, speed and cost."
• "Our business model is expanding from per seat subscriptions to include consumption, expanding our TAM and ARPU. The subscription brings increasingly capable everyday intelligence to every user. Typically, IT funds this, consolidating frontier advances for everyone across the organization. And as agents take on higher-value work, consumption opens up business funded demand with spending tied directly to the value these agents deliver."
• "We now have 44,000 paid Fabric customers, up more than 50% year-over-year. We are bringing Foundry and Fabric closer together so you can build your own agents right next to data. Over 19,000 customers now use Foundry and Fabric as enterprises connect and operate agents over real-time operational, analytical and unstructured data."
• "The shiny object stuff is waning, right, which is not about the next big thing. They're really more about, wow, can I build the system? Can I own the weight? Can I manage my costs? Can I have reliability? What about security? And so in that sense, the enterprise breadth motion is starting. But like everything else, the enterprise stuff is not like a quarter-over-quarter. It's a decade-long thing, and that's what I've been waiting for as opposed to like 4 customers who buy a lot of capacity from you and you can show a few quarters of growth. And that's not a business as far as I'm concerned. So I want the breadth. We are well positioned on the breadth. And we have large customers who want to buy from us, and we're open for business with it. And as long as the pricing is right, we may sell them some. If not, we will be patient about building the breadth of business."

Here's the outlook in detail.