EPS of $3.46 increased by 17.6% from previous year
Gross margin of 68.7%
Net income of 25.82B
"N/A" -
Microsoft Corporation (MSF.F) QQ3 2025 Financial Results – Cloud and AI Momentum Sustains Industry-Leading Profitability
Executive Summary
Microsoft delivered a solid QQ3 2025 performance characterized by double-digit revenue growth, robust profitability, and strong cash generation, underscoring the resilience of its software and cloud platform model. Reported revenue of $70.07 billion marked YoY growth of 13.3% and QoQ expansion of 0.6%, reflecting ongoing demand for cloud services, productivity software, and AI-enabled solutions. The gross margin of 68.7% and operating margin of 45.7% illustrate a high-margin business mix supported by scale, prudent cost discipline, and a strong mix shift toward higher-margin cloud and AI-enabled offerings. Net income reached $25.82 billion with an EPS of $3.47 (diluted $3.46), setting a foundation for sustained shareholder value through continued buybacks and dividends.
Operating cash flow stood at $37.04 billion for the quarter, with capital expenditures of $16.75 billion and free cash flow of $20.30 billion. The balance sheet remains exceptionally liquid and levered to growth, with cash and short-term investments totaling approximately $79.6 billion against total debt of roughly $60.6 billion and net debt of about $31.7 billion. Notably, Microsoft continues to deploy capital toward transformative AI capabilities and cloud infrastructure, while maintaining a disciplined approach to cost management and R&D to sustain long-term margins.
Overall, the QQ3 2025 results reinforce Microsoft's position as a diversified software and cloud leader with a durable earnings engine. While valuation multiples imply a premium relative to broad markets, the combination of high margins, meaningful free cash flow, and a strategic AI-enabled growth trajectory supports a constructive long-term investment thesis, contingent on continued cloud demand, enterprise software adoption, and prudent capital allocation.
Key Performance Indicators
Revenue
70.07B
QoQ: 0.62% | YoY:13.27%
Gross Profit
48.15B
68.72% margin
QoQ: 0.66% | YoY:11.06%
Operating Income
32.00B
QoQ: 1.10% | YoY:16.02%
Net Income
25.82B
QoQ: 7.12% | YoY:17.71%
EPS
3.47
QoQ: 7.10% | YoY:17.63%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $70.066 billion for QQ3 2025, YoY growth of 13.27% and QoQ growth of 0.62%.
Net Income: $25.824 billion; Net Margin: 36.86% (0.3685667799).
EBITDA: $40.711 billion; EBITDARatio: 0.5810.
Financial Highlights
Revenue and Profitability
- Revenue: $70.066 billion for QQ3 2025, YoY growth of 13.27% and QoQ growth of 0.62%.
- Gross Profit: $48.147 billion; Gross Margin: 68.72% (0.6871663860).
- Operating Income: $32.000 billion; Operating Margin: 45.67% (0.4567122427).
- Net Income: $25.824 billion; Net Margin: 36.86% (0.3685667799).
- EBITDA: $40.711 billion; EBITDARatio: 0.5810.
- EPS: $3.47 (Diluted $3.46); Weighted Ave Shs: 7.434 billion.
Cash Flow and Capital Allocation
- Operating Cash Flow: $37.044 billion; Free Cash Flow: $20.299 billion.
- Capital Expenditures: $16.745 billion; Net cash from investing activities: negative $12.714 billion.
- Net cash provided by financing activities: negative $13.036 billion; Net change in cash: +$11.346 billion; Ending cash and equivalents: $28.828 billion.
- Dividends paid: $6.169 billion; Share repurchases: $4.781 billion; Net debt: $31.739 billion.
Balance Sheet and Leverage
- Total Assets: $562.624 billion; Total Liabilities: $240.733 billion; Total Equity: $321.891 billion.
- Cash and cash equivalents: $28.828 billion; Short-term investments: $50.784 billion; Total cash & equivalents and short-term investments: $79.612 billion.
- Long-term debt: $57.568 billion; Short-term debt: $2.999 billion; Total debt: $60.567 billion; Debt/Capitalization: 15.8%; Interest Coverage: 53.9x.
- Working capital dynamics: Current Ratio 1.372x; Quick Ratio 1.364x; Cash Ratio 0.252x; Days Sales Outstanding 66.4; Inventory Turnover 25.85x.
Segment and Mix (Implied from performance mix and notes)
- The results reflect strength across Productivity and Business Processes, Intelligent Cloud, and More Personal Computing, with cloud/AI-driven offerings (Azure, Office 365, GitHub, Nuance AI solutions) contributing to sustainable margin expansion and cash flow generation.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
70.07B
13.27%
0.62%
Gross Profit
48.15B
11.06%
0.66%
Operating Income
32.00B
16.02%
1.10%
Net Income
25.82B
17.71%
7.12%
EPS
3.47
17.63%
7.10%
Key Financial Ratios
currentRatio
1.37
grossProfitMargin
68.7%
operatingProfitMargin
45.7%
netProfitMargin
36.9%
returnOnAssets
4.59%
returnOnEquity
8.02%
debtEquityRatio
0.19
operatingCashFlowPerShare
$4.98
freeCashFlowPerShare
$2.73
dividendPayoutRatio
23.9%
priceToBookRatio
8.67
priceEarningsRatio
27.02
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Transcript Highlights
- Note: The provided dataset does not include an earnings transcript. No management quotes are available to cite verbatim within this analysis. The assessment below draws on reported financials and typical strategic themes discussed in Microsoft earnings calls.
- Strategic Focus (implied): Continued emphasis on cloud resilience, AI integration, and productivity software to monetize enterprise spend. Azure and cloud services are positioned as the primary growth engine, complemented by high-margin software like Office 365, LinkedIn, and GitHub.
- Operational Execution (implied): Margin discipline and scale-driven profitability underpin Q3 results, supported by strong cash flow generation and continued capital allocation toward share repurchases and dividends. The negative working capital indicators and robust cash conversion metrics point to efficient operations and healthy cash conversion.
- Market Conditions (implied): Sustained demand for cloud infrastructure and AI-enabled offerings in enterprise environments, with the potential tailwinds from AI-assisted productivity tools and developer platforms. The competitive environment and macro uncertainties remain ongoing considerations for future quarters.
N/A
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N/A
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Forward Guidance
Forward Guidance
- Explicit guidance: Not provided in the available data. The QQ3 2025 results suggest continued execution in cloud, AI, and productivity software, but there is no formal forward outlook furnished in the transcript set.
- Qualitative outlook (inference): The trajectory implies continued revenue growth anchored by Intelligent Cloud and Productivity segments, supported by AI-enabled products and platforms (e.g., Nuance and GitHub integrations, Copilot-type offerings) that can sustain favorable margins and robust free cash flow.
- Monitoring points for investors: (1) Azure/Cloud demand and pricing dynamics, (2) enterprise AI adoption and integration with Microsoft platforms, (3) Windows licensing revenue and More Personal Computing demand cyclicality, (4) competitive pressure and regulatory developments, (5) currency effects on international results.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MSF.F Focus
68.72%
45.70%
8.02%
27.02%
APC.F
46.50%
30.00%
35.60%
31.97%
ABEA.F
58.70%
32.30%
8.37%
19.18%
NVD.F
74.60%
62.30%
29.30%
44.63%
INL.F
39.00%
7.15%
3.82%
9.86%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Investment Outlook
The QQ3 2025 results affirm Microsoft’s status as a resilient, highly cash-generative software and cloud leader. Key positives include robust YoY revenue growth (13.3%), sustained high margins, and Free Cash Flow of $20.3B, which supports an attractive capital-return program (dividends and share repurchases) and ongoing AI/cloud investments. Valuation metrics reflect a premium posture (P/E around 27x, P/S ~39.8x), justified by the company’s scale, diversified monetization, and secular AI/automation tailwinds.
Key factors for continued upside: (1) Azure demand and cloud pricing power, (2) monetization of AI-enabled offerings across productivity and developer platforms, (3) enterprise software adoption and LinkedIn monetization, (4) effective capital allocation that sustains growth while returning capital to shareholders.
Risks to monitor include the competitive intensity in cloud infrastructure, potential regulatory constraints on AI and data usage, and macro headwinds affecting enterprise IT budgets. Overall, for long-term investors, Microsoft remains a compelling core holding in technology, with a high-quality earnings base and meaningful optionality from AI-enabled product cycles.
Key Investment Factors
Growth Potential
Azure and Intelligent Cloud continue to be primary growth pillars. The company’s AI investments across Nuance, GitHub, and Copilot-like offerings, combined with a broad Office productivity suite adoption, support durable revenue expansion and high margins. Trailing twelve-month revenue growth of 13.27% and solid FCF generation underscore earnings power and capacity to fund AI-led expansion.
Profitability Risk
Key risks include competitive pressure from hyperscale peers, potential macro weakness impacting enterprise IT budgets, regulatory and privacy concerns around AI features, and currency volatility given the global revenue base. While margins are attractive, continued investment in AI and cloud infrastructure could moderate near-term margin expansion if pricing pressure or cost inflation accelerates.
Financial Position
Microsoft maintains a robust balance sheet with $28.8B cash and equivalents and $50.8B in short-term investments, supporting a total liquidity position of roughly $79.6B. Total debt of $60.6B yields a conservative net debt of approximately $31.7B. The company demonstrates strong cash flow with $37.0B operating cash flow and $20.3B free cash flow in QQ3 2025, enabling ongoing shareholder remuneration and strategic investments.
SWOT Analysis
Strengths
High gross margin (~68.7%) and operating margin (~45.7%) reflecting a durable software and cloud business
Diversified revenue mix across Productivity and Business Processes, Intelligent Cloud, and More Personal Computing
Strong free cash flow generation (~$20.3B) and solid balance sheet with substantial liquidity
Market leadership in cloud (Azure) and leadership in AI-enabled software ecosystems (Nuance, GitHub, LinkedIn)
Weaknesses
Large non-current assets and goodwill imply potential impairment sensitivity in extraordinary market conditions
Cyclicality in More Personal Computing could exert pressure during PC cycle downturns
Opportunities
AI expansion across enterprise workflows, developer tools, and patient care/healthcare AI via Nuance
Deepening Azure adoption and cross-sell within the Office 365/LinkedIn/GitHub ecosystems
Continued monetization of cloud and productivity suites with potential margin upside from efficiency gains
Threats
Intense competition from hyperscalers (AWS, Google Cloud) potentially impacting growth trajectory
Regulatory and privacy considerations around AI, data usage, and cloud services
Macro volatility and currency movements affecting international revenue quality
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