Microsoft Q4 2025 Earnings Preview: Azure Growth, AI Spend, and CapEx in Focus

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Microsoft (MSFT) reports fiscal Q4 2025 earnings after the market close Wednesday, and investor attention is squarely focused on two things: Azure growth and capital expenditures. Wall Street is watching closely whether Azure can once again post mid-30% year-over-year constant currency growth, as guidance has indicated, and whether CapEx will remain within the company’s current forecast of about $80 billion for FY25—or see an upward revision akin to Alphabet’s recent hike. Beyond the cloud, Microsoft’s push into AI, underpinned by heavy infrastructure spending and high-profile talent acquisitions, has the Street debating whether margins can hold steady even as CapEx rises. Advertising from Bing and LinkedIn, commercial adoption of Microsoft 365 Copilot, and commentary on the evolving OpenAI partnership are also expected to feature heavily in management’s update.

Analysts broadly expect another strong quarter. Consensus EPS sits at $3.35, up from $2.95 a year ago, while revenue is forecast to reach $73.86 billion, a 14% year-over-year increase. Within that, Azure growth of 34–35% c/c remains the bogey, with some on the Street, including UBS and Stifel, flagging the potential for upside to 36% if enterprise demand holds firm. Microsoft’s guidance for Q4 called for Productivity and Business Processes revenue of $32.05–$32.35 billion, Intelligent Cloud revenue of $28.75–$29.05 billion, and More Personal Computing of $12.35–$12.85 billion. Investors will weigh the print against those ranges while parsing commentary on whether CapEx in FY26 could rise as much as 50% year over year, pushing above $110 billion, as some analysts suggest.

The CapEx debate is central to the AI story. Microsoft has guided for FY25 spending of roughly $80 billion, but CFO Amy Hood has previously acknowledged that data center capacity remains tight, particularly for GPUs, with spending increasingly tilted toward short-lived assets that are more directly tied to revenue growth. Analysts are openly debating whether Satya Nadella will moderate CapEx growth in FY26 or raise it again to avoid ceding ground in the AI arms race. Alphabet recently lifted its 2025 CapEx projection to $85 billion, and Meta to as high as $72 billion, raising the bar for Microsoft. Stifel notes supply/demand imbalances could persist into 2H26, extending the need for elevated spending.

Beyond CapEx and Azure, there are other KPIs to monitor. Citi and Morgan Stanley highlight commercial adoption of Microsoft 365 Copilot, with CIO surveys indicating penetration could rise to 31% of endpoints over the next 12 months, nearly doubling from last quarter’s 17%. GitHub Copilot users grew 4x year-over-year in Q3, and Fabric adoption surged 80%, underscoring Microsoft’s ability to scale AI products across its customer base. Analysts will also watch Commercial bookings growth, which rose 18% last quarter, as a key indicator of long-term demand.

The evolving relationship with OpenAI is another focal point. Microsoft has invested nearly $13.75 billion in the company and has a revenue-sharing agreement through 2030. However, OpenAI recently signed an additional compute deal with Google Cloud, raising questions about how much of OpenAI’s workloads Microsoft will capture going forward. While the near-term financial impact may be limited, investor sentiment will hinge on commentary around the partnership, especially given OpenAI’s revised long-term revenue forecast of $125 billion by 2029.

Looking back at Q3 2025, Microsoft delivered a strong beat, reporting revenue of $70.07 billion (up 13% year-over-year) and EPS of $3.46 (up 18%). Microsoft Cloud revenue topped $42.4 billion, growing 22% in constant currency, with Azure up 35%. Productivity and Business Processes revenue grew 13% to $29.9 billion, boosted by Microsoft 365 and LinkedIn, while Intelligent Cloud climbed 22% to $26.8 billion. More Personal Computing was up 7% to $13.4 billion, aided by a 21% increase in search and news advertising ex-TAC. Operating margin held at 41%, despite the drag of scaling AI infrastructure. This quarter, investors expect Azure to hold or slightly improve on that 35% growth rate, though comparisons will be tougher after Alphabet’s recent acceleration in Google Cloud.

Major drivers this quarter will include AI adoption metrics, commentary on data center expansion, and the performance of Productivity and Business Processes, especially M365 Commercial Cloud. Citi notes its reseller survey showed one of the strongest growth results in four years, pointing to upside in Dynamics and Copilot demand. Morgan Stanley projects that OpenAI-related costs will weigh on EPS in FY26 but that Microsoft could hit the $13 billion loss cap by the end of FYQ4 2026, paving the way for 20% EPS acceleration in FY27.

Risks remain. Management has acknowledged power and data center space constraints, while tariffs and potential semiconductor supply issues could inflate infrastructure costs. Additionally, increased competition from Alphabet’s custom TPU silicon could pressure Azure’s cost efficiency. Regulatory scrutiny—such as recent U.S. House inquiries into foreign cable servicing—adds another layer of uncertainty.

Overall, consensus sentiment remains bullish. Analysts at UBS, Citi, Stifel, and OPCO all raised price targets into earnings, with targets now ranging between $530 and $613. Wedbush maintains a $600 target, noting that Microsoft is just hitting its next phase of AI monetization, while Oppenheime projects the company sustaining a “Rule of 60” business profile at unprecedented scale.

The bottom line: Investors head into Microsoft’s earnings with high expectations. Azure’s growth trajectory, CapEx discipline, and Copilot adoption will set the tone. If Microsoft delivers another quarter of mid-30s Azure growth and offers a clear roadmap for balancing CapEx with free cash flow, the stock could extend its strong YTD performance. But with peers like Alphabet raising the bar, execution and forward guidance will be critical in determining whether Microsoft retains its hyperscaler edge into FY26.