Microsoft set to report Q3 earnings as AI monetisation takes centre stage

Microsoft (MSFT) is scheduled to report its fiscal third-quarter (Q3 FY2025) earnings after the market closes on April 30. The tech giant enters the results period under pressure to demonstrate tangible returns on its aggressive AI investments, with shares down roughly 7% year-to-date despite broader resilience across the tech-heavy Nasdaq.

Earnings expectations: steady growth, but margin pressure eyed

According to Bloomberg consensus estimates, Microsoft is expected to deliver adjusted net income of $24.94 billion for the quarter, up from $22.15 billion in the same period last year. Adjusted earnings per share (EPS) are forecast at $3.48, representing year-on-year growth of approximately 12.15%. Revenue is projected to rise to $69.62 billion, compared to $65.44 billion a year earlier, as demand for cloud services and AI-enhanced products remains strong. However, EBITDA margins are forecast to ease slightly to 44.8%, down from 46.4% a year ago, reflecting ongoing investment in AI infrastructure.

Azure momentum and AI monetisation key to outlook

Investors will be laser-focused on Microsoft's cloud business, particularly Azure, where generative AI integrations are expected to fuel future growth. The company's partnerships, most notably with OpenAI, and the rollout of AI features across Microsoft 365 and GitHub Copilot, have positioned it at the forefront of the AI boom. However, there are questions about the immediate financial impact. While AI-related products are gaining traction, substantial infrastructure spending could weigh on margins in the near term, making management’s commentary on future monetisation pathways crucial.

Analyst sentiment: bullish positioning, but high expectations

Wall Street remains overwhelmingly bullish ahead of Microsoft's Q3 report. According to Bloomberg data, 90.3% of analysts rate the stock a buy, with an average 12-month price target of $488.38, implying a potential upside of 24.6% from current levels.

Heavyweights such as Morgan Stanley, JP Morgan, and Goldman Sachs continue to flag Microsoft’s leadership in AI and cloud as major structural advantages. However, with Microsoft trading at around 29.7x forward earnings — a significant premium to the broader market — execution risk remains high if growth or margins disappoint.

Microsoft shares show tentative signs of recovery

Microsoft shares are in a downtrend having shed as much as 17% of its value since the start of the year. The company’s valuation has deflated significantly due to the impact of US President Donald Trump’s trade policy on market sentiment. There are tentative signs of recovery, with momentum slowly picking up with the stock carving out a possibly double bottom. A significant resistance zone sits around $395 per share. If it breaks, it may open further upside towards the stock’s 200-day moving average. A failure to break high will bring tentative upward sloping support into view, a break down of which could see a retest of the recent lows. Given the stock’s 7.4% implied earnings day move, the earnings reaction could be sharp — in either direction.

^{(Source: Trading View)}
(Past performance is not a reliable indicator of future results)