Inside Microsoft’s Q3 Surge
Cloud Dominance, AI Momentum, Tariff Watch
Microsoft crushed Q3 expectations, as robust cloud and AI performance pushed shares nearly 10% higher.
Apple delivered a solid Q2, but a soft Services beat and rising tariffs raise the question: can its supply chain pivot absorb the pressure?
💻 Microsoft Q3: Cloud-Driven Beat Sends Shares Soaring
Microsoft kicked off earnings — delivering a stronger-than-expected Q3 and reaffirming its place at the centre of the AI and cloud computing boom. The results sent shares up nearly 10% in early last Thursday trading, as investors cheered broad-based strength across business segments.
📊 Headline Numbers
Revenue: $70.1 billion, +13% YoY (+15% in constant currency)
Net income: $25.8 billion, +18% YoY
EPS: $3.46, beating Wall Street’s estimate of $3.21
Operating income: $32.0 billion, +16% YoY
Cloud revenue: $42.4 billion, +20% YoY (vs $42.2B expected)
CEO Satya Nadella summed it up neatly: “Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth.”
Product Revenue = income from selling software licenses, hardware, or packaged solutions that are delivered as standalone items.
Service Revenue = income from providing ongoing access, support, cloud hosting, subscriptions, or consulting over a period of time.
🔍 AI Momentum Lifts Azure
Azure and other cloud services were once again the star performers, posting a 33% YoY revenue surge (+35% in constant currency). Microsoft noted that AI alone contributed 16 points to Azure’s growth. The firm cited higher AI infrastructure utilisation and improved server capacity as drivers.
Despite recent reports of Microsoft slowing or cancelling early-stage AI data centre projects, the latest figures show customers are still demanding more AI services than the company can currently deliver.
🧩 Financial Report Segment Highlights
Productivity & Business Processes: $29.9B (+10%)
Microsoft 365 and Dynamics 365 both saw double-digit growth, while LinkedIn revenue rose 7%.Intelligent Cloud: $26.8B (+21%)
Driven by Azure and strong server product sales.More Personal Computing: $13.4B (+6%)
Windows OEM and device sales ticked up 3% despite lingering inventory pressure and tariff headwinds. Xbox content and advertising revenues also delivered upside surprises.
📦 Tariffs in Focus—but Contained (for Now)
While President Trump’s new tariffs have cast a shadow over the tech sector, Microsoft seems relatively insulated for now. CFO Amy Hood noted that PC makers are still working through elevated inventory levels, and the firm’s diversified global footprint could help mitigate future shocks.
Still, Microsoft Cloud President confirmed the firm is being selective—“slowing or pausing some early-stage projects”—in response to supply-demand mismatches. TD Cowen analysts recently reported Microsoft has even exited certain data centre leases.
💰 Capital Returns Continue
Microsoft returned $9.7 billion to shareholders via buybacks and dividends in Q3. Despite its massive capital expenditure on AI infrastructure, the company continues to operate with enviable financial discipline.
As tariff risks evolve and macro uncertainty lingers, Microsoft’s diversified business mix and cash-generative model offer a rare blend of resilience and upside.
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In Case You Missed It 📬
🍏 Apple Beats Q2 Expectations—but Tariffs Cloud the Outlook
On 1 May, Apple reported a solid Q2 FY2025, posting $95.4 billion in revenue (+5% YoY) and EPS of $1.65 (+8% YoY), outperforming Wall Street estimates. The boost came from strong hardware sales—including the iPhone 16e, new M-series Macs, and upgraded iPads—while the Services division delivered double-digit growth but came in slightly below expectations.
🔋 Resilience with a Sustainability Push
CEO Tim Cook highlighted Apple’s continued environmental progress, noting a 60% cut in carbon emissions over the past decade. CFO reported $24 billion in operating cash flow and $29 billion returned to shareholders, supported by record-high active device installations across all segments—a testament to Apple’s sticky ecosystem and loyal customer base.
💥 Tariff Troubles Ahead?
The more pressing concern, however, is geopolitics. Apple expects tariffs to add $900 million in costs next quarter—a significant hit that underscores growing uncertainty in its global supply chain. Cook acknowledged the difficulty in forecasting beyond June.
To mitigate exposure, Apple has accelerated its supply chain diversification: nearly half of U.S.-bound iPhones are now sourced from India, while Vietnam has taken on more production for other products, helping reduce reliance on China.
🧭 Quick Take
While Q2 results were reassuring, the muted Services beat and looming tariff pressures reveal structural challenges beneath the surface. Apple’s strategy of geopolitical hedging—by shifting supply chains—is prudent, but the broader question remains: can operational resilience offset rising macro costs in a fragmenting global economy?
We’ll be watching closely.
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