Microsoft Stock Surges After Q3 2025 Earnings: What Separates Azure from AWS, Google Cloud

Microsoft stood out amongst its Big Tech peers Amazon and Alphabet this earnings season due to its strength and outperformance in the cloud. Notably, Microsoft Azure was the only cloud provider of the 3 platforms to see growth accelerate this quarter, highlighting Microsoft’s impressive earnings for Q3 2025. Not only did Azure separate itself with this 4-point sequential growth acceleration, but it also grew at more than 2x the rate of AWS and 7 points faster than Google Cloud, reaffirming the company’s momentum in the Azure vs AWS vs Google Cloud battle. 

We highlighted Microsoft’s AI strategy and its potential to be dominate AI for our premium members in April 2022 prior to Chat-GPT 3’s release, repeating this thesis in October 2022, labeling Microsoft a “sleeping AI giant” when shares were trading at $247.   

Fast forward and Microsoft fiscal Q3 report is cementing the company as the strongest AI player in the hyperscale crowd due to its focus and dominance across enterprise software offerings and deep AI integrations aided by its partnership with OpenAI. Year-to-date, Microsoft is outperforming Alphabet and Amazon by at least 10 points, making it the sole Big 3 stock in positive territory after its strong fiscal Q3 report. 

Microsoft stock is up 7% YTD after its strong Q3 report, while Alphabet and Amazon remain negative. Source: YCharts  

Below, we discuss Microsoft earnings for Q3 2025, Azure’s outperformance, Microsoft’s lead in AI with OpenAI, and a major catalyst that nobody is talking about.  

Azure Growth Reaccelerates in Microsoft’s Q3 FY25 Earnings 

Azure’s growth was expected to be weak this quarter, with numerous analyst notes raising concerns about Azure’s growth heading into Q3’s report, noting that macro headwinds could weigh on growth. Many analysts had forecast growth of 30% to 31% in constant currency, at or below Microsoft’s guidance for 31% to 32% growth.  

However, Azure reported quite the opposite as growth accelerated to 35% in constant currency -- well ahead of the guide and analyst expectations.  

Azure’s growth reaccelerated to 35% in constant currency in Q3, and is expected to remain at that growth  rate in Q4. 

Azure benefited as Microsoft brought capacity online faster than expected in the quarter, to meet high demand for AI services. AI contributed 16 points of growth in the quarter, compared to 13 points last quarter and 10 points of growth a year ago. Microsoft did not provide an update on AI’s run rate after saying last quarter it had surpassed $13 billion, up 175% YoY. 

In the ongoing battle of Azure vs AWS vs Google Cloud, Azure is growing not only growing faster but also seeing higher AI revenue. Neither of the two have reported a specific AI revenue figure like Microsoft, simply saying it was in the multiple-billion dollar range, implying AI revenue to be less than $10 billion and likely in the $3-6 billion range. GCP has also decelerated 7 points in 2 quarters, while AWS decelerated once again in Q1: 

Azure growth reaccelerated to 35% last quarter while AWS and GCP growth both decelerated. 

Additionally, margins for AI were strong as well. Microsoft said that “margins on the AI side of the business are better than they were at this point by far than when we went through the same transition and the server to cloud transition.” Driving a growth acceleration at this scale while peers decelerate with strong margins is quite an impressive feat.  

AI contributed 16 points of growth in fiscal Q3, consistently expanding its share over the past seven quarters. 

For Q4, Microsoft guided 34% YoY and 35% constant currency growth for Azure, driven by strong demand, maintaining a very similar growth cadence as the prior year. Management added that demand is growing slightly faster than capacity that can be brought online, and as a result they “expect to have some AI capacity constraints beyond June.”  

Over the longer-term, Azure is expected to outperform both AWS and GCP through 2026, according to estimates from UBS. For 2025, Microsoft Azure growth is projected at 28.6% YoY to $83.3 billion, outpacing both AWS at 16.8% and Google Cloud at 25.3%, according to UBS. UBS also forecasts Azure to maintain a 28% growth rate in 2026 to $106.7 billion in revenue, whereas GCP is forecast to decelerate to 22% and AWS to >16% YoY.  

Azure’s Non-AI Growth Resilient

Interestingly, Microsoft noted and reiterated that the real driver of outperformance this quarter was not AI, but rather Azure’s non-AI business.  

Last quarter, non-AI was a bit of a drag on revenue, as it faced challenges in sales through partners and indirect methods. Microsoft had shifted sales & marketing budgets and resources last summer to balance AI workloads with ongoing migrations and other customer needs, and as a result some lingering impacts on non-AI Azure revenue were expected through 1H 2025. 

Management reaffirmed that in Q3, the “majority of our outperformance versus where we had expected to be was on the non-AI piece of the business,” driven by strong execution and accelerations within its enterprise customers. 

The upbeat performance in non-AI revenue and confidence from management in continuing this strong growth next quarter is quite encouraging, and a stark contrast to Q2. This newfound strength and resilience in non-AI can complement AI growth on Azure, preserving this growth acceleration. 

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Microsoft’s Enterprise Advantage 

Non-AI revenue was hammered home as the real driver of Azure’s Q3 outperformance, and this boils down to one key advantage – Microsoft's dominance in the enterprise. Microsoft benefits from strong enterprise concentration in cloud infrastructure and software, with more than 80% of its Office 365 subscriptions from Commercial customers and more than 95% of the Fortune 500 using Azure for cloud needs. This compares to Google Cloud which has emphasized its startup customer base in the past: “more than 60% of funded gen AI startups and nearly 90% of gen AI unicorns are Google Cloud customers.” HG Insights states AWS has seen only 3% growth in enterprises with 28% in startups and SMBs. 

Microsoft is quickly integrating enterprise customers to its AI Copilot offerings, with nearly 520 million 365 subscriptions to target with Copilot and more than 80% of those being Commercial seats – a key pillar of Microsoft’s AI strategy in 2025. Microsoft also said that more than 230,000 organizations and 90% of the Fortune 500 have used Copilot Studio, while 365 Copilot users rose 3x YoY to the hundreds of thousands with larger deal sizes.  

Additionally, Microsoft is benefiting from increased usage by its strategic partner OpenAI, not only due to its 49% ownership stake and revenue-sharing agreement, but also due to the sharp rise in ChatGPT usage and token generation as OpenAI’s APIs are exclusive to Azure. 

OpenAI is a strong driver for Azure as the world’s most popular AI assistant, including not only the Azure usage from Chat-GPT's 400 million weekly active users but also from Azure Open AI, which allows API access for enterprises to integrate OpenAI models into their applications. This combination is resulting in high token usage, coupled with developers who use Open AI’s APIs, and also platforms on Azure such as Azure Foundry, where over 70,000 enterprises have built AI applications using OpenAI and other models. 

Microsoft’s 49% Stake in OpenAI, 20% Revenue Share 

Microsoft has invested a total of $13.75 billion in the ChatGPT parent, holding a 49% stake in the company along with rights to OpenAI’s IP and exclusivity for OpenAI’s APIs on Azure. This has paid off handsomely as Chat-GPT queries and OpenAI API calls run on Azure servers.  

The 49% stake in OpenAI is now worth $147 billion after the company’s March fundraise at a $300 billion valuation, and Microsoft also has revenue and profit-sharing agreements through 2030 (although these may soon be amended). 

Diagram of OpenAI’s complex corporate structure and Microsoft’s investment. Source: Financial Times 

Currently, Microsoft and OpenAI’s partnership includes a 20% revenue share for Microsoft through 2030, as well as a 75% profit-share until its investment is returned. Microsoft’s original $1 billion investment in 2019 also gave them 49% profit share in OpenAI’s capped profit subsidiary with a 100x investment cap, or up to $100 billion.  

However, OpenAI is now said to be seeking to cut the revenue share down to 10% by the end of the decade as part of a restructuring plan that may set the path for a future IPO. Under the plan, OpenAI will see its “for-profit arm becoming a public benefit corporation (PBC) but continue to be controlled by its nonprofit division.” It is reported that Microsoft would also give up some of its stake in exchange for access to new models developed after the 2030 cutoff.  

While the plan is still fluid in nature, OpenAI is projecting substantial revenue growth over the next four years, as it recently boosted its long-term revenue forecasts, representing a large revenue opportunity for Microsoft. OpenAI raised its 2029 revenue estimate by 25% to $125 billion, while also substantially raising its 2027 and 2028 revenue estimates by >20%.  

OpenAI boosted its revenue projections from 2025 onwards, raising 2029 projections by 25%. 

On a cumulative basis from 2024 to 2029, OpenAI’s updated projections now see revenue of $311 billion, up from $256 billion previously. Under the terms of the current deal at 20%, this would represent $62.2 billion in cumulative revenue to Microsoft, growing almost 10x from an estimated $2.6 billion in 2025 to $25 billion by 2029 based on this projection. This revenue share opportunity would be nearly 5x more than it has invested in the ChatGPT parent. At a 10% share, this could still represent at least $31.1 billion in cumulative revenue assuming these projections materialize.  

Despite this growth, OpenAI is not expecting to be cash-flow positive until 2029, providing a drag to earnings via the profit-share. For the nine-months ending Q3, Microsoft reported ($3.2 billion) in other expenses, up more than 3x YoY to 3.3% of operating income, primarily related to losses from equity method investments including OpenAI. 

Tokens Processed Up 5X to 100 Trillion Per Quarter 

Hundreds of millions of Chat-GPT users, along with millions of developers using OpenAI’s APIs are driving a surge in Azure’s processed tokens. 

CEO Satya Nadella said that Microsoft “processed over 100 trillion tokens this quarter, up 5x year-over-year, including a record 50 trillion tokens last month alone.” A rough estimate for 100 trillion tokens in API calls from GPT-4 could drive $4.5 billion per quarter (or $18 billion annualized) at the midrange, though a higher mix of lower priced models could bring this closer to $2 billion per quarter.  

The rapid increase in ChatGPT image generator’s popularity in the last month likely aided token growth to the record 50 trillion. Nadella had another very important quote on the call that suggests they can continue to drive token growth moving forward: 

“You see this in our supply chain where we have reduced dock to lead times for new GPUs by nearly 20% across our blended fleet where we have increased AI performance by nearly 30% ISO power and our cost per token, which has more than halved.” 

What Nadella is saying is that Microsoft increased deployment times for its newest GPUs, bringing new capacity online faster to meet demand. Additionally, Microsoft also boosted efficiency significantly, increasing performance by 30% without using more power, helping drive token costs down by more than half. More efficient capacity and lower token costs supports further token growth ahead, especially considering ChatGPT’s popularity and widespread usage with 5.6 billion monthly visits as of March. 

Microsoft is also seeing rapid adoption of its new AI agent platform, Azure AI Agent Service, which was initially unveiled in December 2024. Microsoft said that in just four months, “over 10,000 organizations have used our new agent service to build, deploy and scale their agents.”   

Azure AI Agent Service is Microsoft’s new fully-managed platform allowing developers and enterprises to build extensible AI agents directly in Azure, without having to manage underlying compute and storage, and using just a few lines of code. These agents can answer questions, perform actions, or fully automate workflows, with integration to 365 and built-in memory and reasoning supporting longer, multi-step tasks. These longer tasks, frequent tool calling and API integration, and multi-agent collaboration all can drive token usage higher as more enterprises adopt and scale on the platform. 

Looking Beyond OpenAI: 

Microsoft also provided a handful of stats that show strong AI-driven platform growth and adoption beyond OpenAI. 

GitHub Copilot is still seeing rapid growth, with Microsoft stating that users rose 4x YoY to more than 15 million. Copilot had accounted for 40% of GitHub’s growth last year, and is still relatively early in its adoption cycle, at ~10% of the 150 million developers on the platform.  In Q3,Microsoft continued to build out Copilot and evolved it “from pair to peer programmer with agent mode in VS Code,” while it also now can “iterate on code, recognize errors and fix them automatically.” 

Analytics consumption accelerated in Q3, with Microsoft Fabric paid customers rising 80% YoY and over 10% QoQ to more than 21,000. Since the start of FY25, Fabric has added more than 5,000 customers, as Microsoft continues to deepen integrations with the platform, such as with Power BI or the new Azure AI Agent Service. Microsoft added that real-time intelligence is the “fastest-growing workload in Fabric with 40% of customers already using it in just five months since becoming generally available.” 

Power Platform continues to see strong user growth, with MAUs rising 27% YoY to 56 million, with Microsoft saying these customers “increasingly use our AI features to build apps and automate processes.” As of Q1, Power Platform had more than 600,000 active organizations, up 4x YoY.  

While strong underlying adoption metrics and deep integrations with OpenAI are driving strong Azure growth, there’s another major upcoming catalyst for Microsoft that will help its ability to cross-sell its AI services into both enterprises and consumers. We share this catalyst and another bullish key metrics that signals Microsoft’s stock could (finally!) lead the Mag 7 again.

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Below the Paywall is the Following information

• Microsoft’s nearly 900M-user AI catalyst for both enterprises and consumers
• The one key metric we’re watching to help time when Microsoft’s stock will rally again after being flat for nearly a year
• The hidden clue in Microsoft’s earnings report that suggests a new AI trend is beginning — plus a few key beneficiaries of this explosive shift management just confirmed
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