Microsoft (MSFT) is set to report its Q3 earnings after the bell on Wednesday, and Wall Street will be closely watching to see if the company’s significant investments in AI and data centers are paying off. However, amid President Trump’s recent “Liberation Day” tariffs, economic uncertainty is expected to affect enterprise spending, which could impact Microsoft’s results.
AI and Cloud Revenue Growth Amid Tariff Uncertainty
Analysts are particularly focused on Microsoft’s AI growth, with the company’s commercial cloud revenue expected to reach $42.2 billion, up from $35.1 billion in Q3 2024. However, amid ongoing tariff concerns, Wedbush analyst Dan Ives cautioned that as much as 10%-15% of cloud and AI initiatives in the U.S. could be delayed or slowed due to broader economic uncertainty. This could impact Microsoft’s performance in the short term, particularly as some of its enterprise customers pull back on spending.
Additionally, Microsoft has been scaling back some of its AI projects. Noelle Walsh, President of Microsoft Cloud Operations and Innovation, confirmed that the company is “slowing or pausing some early-stage projects.” Microsoft has also canceled an unspecified number of data center leases, adding another layer of uncertainty regarding its AI and cloud service capacity.
Financial Expectations: Growth Slows, AI Revenue Boosts
Microsoft is expected to report earnings per share (EPS) of $3.21 on revenue of $68.4 billion, up from EPS of $2.94 and revenue of $61.8 billion in the same quarter last year. The company’s Intelligent Cloud segment, which includes its Azure cloud platform, is anticipated to grow by 30.9%, although this marks a slowdown from the previous year’s growth rate of 35%. Similarly, Productivity and Business Processes is expected to grow by 9.8%, a decrease from last year’s 11%.
Despite the expected slowdown in overall growth, analysts are optimistic about the increase in Azure’s AI revenue. They anticipate a 15.6% jump in AI-related Azure revenue, the largest quarter-over-quarter increase since Q2 2024, when AI revenue grew from 5% to 9% of Azure’s total.
Focus on Forward Guidance Amid Tariff Impact
Investors will also be keenly watching Microsoft’s forward-looking guidance for the upcoming quarters to gauge the potential impact of tariffs on future performance. While some companies, like Google (GOOG), issued a solid outlook for Q1, chipmaker Intel (INTC) provided worse-than-expected guidance, contributing to market volatility.
Jefferies analyst Brent Thill noted that investors will likely pay close attention to the level of conservatism embedded in Microsoft’s guidance, particularly in light of tariff uncertainties. “We believe management may likely embed extra conservatism in the Q4 guidance,” Thill wrote in an investor note.
Microsoft’s More Personal Computing Segment
The More Personal Computing segment, which includes Windows licenses, gaming, and search, is expected to generate $12.6 billion in revenue, showing a slight increase of less than 1% year over year. As Microsoft plans to end support for Windows 10 in October, analysts expect this to boost sales of Windows 11-powered PCs, driving further growth in the segment.
