Microsoft (MSFT) reported third-quarter results after the bell on Wednesday, beating analyst expectations on top and bottom lines, and said its AI business now has annual revenue of $37 billion, up 123% year-over-year.
However, the company’s stock price fell after the company announced that it expects capital spending to be $40 billion in the fourth quarter and that capital spending for the 2026 calendar year will reach $190 billion. The company’s previous forecast had put AI investments at nearly $150 billion annually.
Nevertheless, Microsoft will remain capacity constrained until 2026. Microsoft’s stock price fell as much as 5% on Thursday following the report.
Microsoft’s earnings per share (EPS) for the quarter was $4.27 on revenue of $82.89 billion. Based on Bloomberg analyst consensus estimates, Wall Street had expected EPS of $4.04 and revenue of $81.46 billion.
It also said its remaining performance obligations were $627 billion, an increase of 99% from last year, with a weighted average term of 2.5 years. Excluding OpenAI, RPO increased by approximately 26%, which is roughly in line with the season average.
The company’s Productivity and Business Processes segment reported revenue of $34.7 billion, slightly above expectations of $34.48 billion, and its Intelligent Cloud business reported revenue of $34.68 billion. Wall Street was seeking $34.31 billion.
Microsoft said its Copilot service now has more than 20 million paid seats, which is higher than the 15 million it reported in the second quarter.
Ahead of its earnings call, Microsoft on Monday provided Wall Street with an update on its most high-profile AI connections, reworking its contract with OpenAI (OPAI.PVT) and saying it will no longer have to make revenue-sharing payments to the AI startup, but that OpenAI will continue to make payments to Microsoft.
But the tech giant also lost exclusive access to OpenAI’s intellectual property and AI models. OpenAI will still have access, but you can also share your data with other companies. OpenAI will now be able to offer its products across cloud partners, not just Azure.
In the PC segment, Microsoft’s More Personal Computing division had revenue of $13.2 billion, compared to expectations of $12.64 billion.
The PC industry is grappling with the effects of a global memory shortage caused by the proliferation of data centers worldwide.
This has forced some manufacturers to raise the price of PCs or discontinue certain low-end models, leading to a decline in overall sales. According to the International Data Corporation, global PC shipments are expected to decline by 11.3% this year.
In terms of capital spending, Microsoft said it spent $31.9 billion in the third quarter, two-thirds of which went to assets such as GPUs and CPUs.
