Microsoft Q3 preview: Wall Street, amid tariff fears, is looking for proof AI is paying off

Tue, Apr 29, 2025, 3:00 AM 3 min read

Microsoft (MSFT) will report positive third quarter earnings after the bell on Thursday. As in prior quarters, Wall Street will be looking for proof that the company's vast AI data center investments are paying off. But President Trump's "Liberation Day" tariffs could add an extra wrinkle as enterprise customers pull back on spending amid broader economic uncertainty.

"We estimate that 10%-15% (could be conservative) of many cloud and AI initiatives in the US we are tracking in the field could be pushed/slowed down during this period of uncertainty and Microsoft will be front and center in this economic period of uncertainty," Wedbush analyst Dan Ives wrote in an investor note earlier this month, shortly after Trump announced he would pause reciprocal tariffs for 90 days.

Microsoft is also cutting back on some of its AI buildout, with Noelle Walsh, president of Microsoft Cloud Operations and Innovation, writing in a LinkedIn post that the company is "slowing or pausing some early-stage projects."

In February, TD Cowen analyst Michael Elias wrote in an investor note that Microsoft was canceling an unspecified number of its data center leases. At the same time, the tech giant has said it's contending with AI capacity constraints that are preventing it from providing as many AI services as its customers need.

Microsoft stock is down 7% year to date, off 3% over the past 12 months.

For the third quarter, Microsoft is expected to report earnings per share (EPS) of $3.21 on revenue of $68.4 billion, according to Bloomberg consensus estimates. The company produced EPS of $2.94 on revenue of $61.8 billion in the same quarter last year.

Microsoft's commercial cloud revenue is expected to top out at $42.2 billion, up from $35.1 billion in Q3 2024.

Broadly speaking, analysts are expecting growth to slow across Microsoft's various business segments. Productivity and Business Processes are expected to reach $29.6 billion, a jump of 9.8% compared to the 11% increase the company saw last year. Intelligent Cloud and Azure revenue are anticipated to grow at 18.2% and 30.9%, respectively, compared to 21% and 35% in Q3 2024.

Still, analysts expect the percentage of Azure revenue attributable to AI to increase by 15.6%, the largest quarter-over-quarter jump since Q2 2024, when it climbed from 5% to 9%.

Microsoft's More Personal Computing segment, which includes sales of Windows licenses to third-party computer makers and its gaming and search divisions, is expected to post revenue of $12.6 billion, up less than 1% year over year.