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Despite ongoing tariff uncertainty, Microsoft delivered another solid performance in Q3 (three months ended March 31st, 2025). To address growing concerns about potential disruptions to cloud services caused by worsening EU-US trading relations, the company also announced new European digital commitments.
Revenue for the period was up by 13% year-on-year (15% in constant currency) to $70.1bn; this compared to 17% growth in the same period last year (Q3 2024) and 12% growth in Q2 2025. Year-to-date (YTD) revenue was up by 14% to $205.3bn. Operating income improved by 16% (19% in constant currency) to $32.0bn, with YTD operating income up 16% to $94.2bn. Meanwhile, net income increased by 18% (19% in constant currency) to $25.8bn, with YTD improving by 13% to $74.6bn.
On a segmented basis, Revenue in Productivity & Business Processes was up by 10% (13% in constant currency) to $29.9bn and More Personal Computing revenue increased by 6% (7% in constant currency) to $13.4 billion; however, Intelligent Cloud remains the key growth driver. Revenue in this part of the business increased by 21% (22% in constant currency) to $26.8bn, driven by 33% growth (35% in constant currency) in Azure and other cloud services revenue. The demand for AI continues to drive growth in this segment, with a 16 percentage point contribution to growth being attributed to AI services.
Looking ahead, Microsoft expects Q4 revenue growth in Productivity & Business Processes and Intelligent Cloud (in constant currency) to be broadly consistent with Q3; however, More Personal Computing revenue is expected to decline year-on-year. It also warned that, while it continues to add datacentre capacity, demand is growing faster, so it expects to experience AI capacity constraints beyond June.
In a bid to quell fears that the US administration might start to throttle or suspend cloud services if EU-US trading relations worsen, Brad Smith (vice chair & president of Microsoft) announced five new commitments to Europe. This includes helping to build a broad AI and cloud ecosystem; upholding Europe’s digital resilience even when there is geopolitical volatility; continuing to protect the privacy of European data; defending Europe’s cybersecurity; and strengthening Europe’s economic competitiveness.
Its European Digital Resilience Commitment includes a promise to “promptly and vigorously” contest any governmental order to suspend or cease European cloud operations, using “all legal avenues available”. The company is making this commitment legally binding on Microsoft Corporation and all its subsidiaries for all contracts with European national governments and the European Commission.
Although Microsoft believes such an order to be “unlikely”, the fact that it is making this commitment reflects increasing concerns about the geopolitical volatility triggered by the US government. These policies are raising important questions about US companies’ dominance of cloud services and increasing calls for investment in sovereign infrastructure in the EU and the UK. For more on the US-UK trade situation, see TechMarketView’s recent report: US-UK tariff situation: UK tech market implications.
Posted by: Dale Peters at 10:08
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