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Technology giant Microsoft (MSFT) will report its fiscal third-quarter 2025 earnings on April 30. While macroeconomic uncertainty has created short-term challenges, the momentum in its artificial intelligence (AI) services and cloud business will likely drive its growth. 

Moreover, recent quarterly financials from Alphabet (GOOGL), a close peer and another major player in big tech, point to a resilient environment for companies with strong cloud and AI portfolios. Alphabet’s first-quarter earnings beat Wall Street expectations, with Google Cloud revenue jumping 28% year-over-year to $12.3 billion. This surge reflects sustained demand for products tied to AI and data analytics, trends that are just as important to Microsoft’s business strategy.

Microsoft’s Azure cloud platform and AI services are expected to be the key growth drivers in the upcoming report. The company has steadily expanded its enterprise partnerships and integrated AI into its core offerings. These initiatives have strengthened its competitive position and will help it weather short-term headwinds in the broader economy.

With this background, let’s look at the Street’s earnings forecast for MSFT’s Q1.

MSFT: Q3 Expectations

Despite broader macroeconomic uncertainties, Microsoft appears well-positioned to deliver another quarter of solid growth in revenue and earnings. Analysts forecast that the technology giant will report earnings of $3.20 per share for the quarter, an 8.84% increase from the $2.94 it earned during the same period last year. 

Notably, Microsoft has a strong history of outperforming Street expectations, surpassing earnings estimates in the past four quarters. In its most recent report, MSFT topped expectations by 3.86%.

A key driver of Microsoft’s top line continues to be its Intelligent Cloud segment, led by its Azure platform. Management expects Azure’s revenue to grow between 31% and 32% in constant currency for the quarter, powered by strong demand across its cloud services and an increasing contribution from AI-related offerings as new capacity comes online.

MSFT’s Productivity and Business Processes segment, which includes Office 365, also remains strong. Revenue here is projected to rise between 11% and 12%, with Microsoft 365 commercial cloud revenue expected to grow 14% to 15%. These figures suggest consistent performance following an already impressive second quarter. Management has signaled that average revenue per user (ARPU) will continue to rise, aided by the increasing adoption of offerings like E5 and Microsoft 365 Copilot.

Meanwhile, Microsoft’s search and news advertising (excluding traffic acquisition costs) business is anticipated to grow in the mid-teens. This growth will stem from higher search volume and revenue per search, bolstered by gains in browser market share through Edge and Bing. However, the company does expect some moderation compared to the previous quarter due to currency headwinds and normalization in third-party partnerships.

In the gaming segment, Microsoft projects modest revenue gains in the low single digits. Growth in Xbox content and services, particularly from first-party titles and Xbox Game Pass subscriptions, should offset declining hardware sales, which are expected to drop year over year.

Microsoft continues to show resilience and operational strength across its diverse business units. The company will likely deliver consistent growth as it leans further into cloud computing and AI.

Why MSFT Stock Is a Buy

Microsoft is poised to benefit from the strength of its Azure and other cloud services revenue, which is led by the acceleration in AI services. Notably, MSFT’s AI services grew 157% year-over-year in Q2. This momentum will likely sustain as increased AI capacity comes online.

By the end of fiscal year 2025, Microsoft expects to have the capacity to meet near-term demand, which should lead to higher revenues as these investments pay off.

Microsoft’s AI business has exceeded $13 billion in annual revenue run rate, marking a 175% jump from the previous year. This upward trajectory will likely continue as the company expands its data center footprint. Over the past three years, Microsoft has more than doubled its data center capacity.

Microsoft 365 Copilot, the company’s AI-powered productivity tool, has also gained strong traction among business users. Since its launch, customers who initially adopted the tool have significantly increased their usage, with seat counts growing more than tenfold in just 18 months. This trend underscores the strong appeal of Microsoft’s AI solutions in the enterprise space, although the growth rate may gradually moderate as the installed base is large.

Microsoft’s shift toward AI and cloud, combined with strong performance in gaming and search, positions the company well to deliver solid profitability even as it continues to scale its AI infrastructure.

Despite concerns around macroeconomic slowdown and softness in Azure’s growth rate, sentiment on Wall Street remains positive. Analysts have given MSFT stock a “Strong Buy” rating, and the average price target of $490.75 suggests potential upside of 25% over the next year.