Microsoft Corp (NASDAQ:MSFT) stock fell 4.83% (As on April 30, 11:22:30 AM UTC-4, Source: Google Finance) after the company’s cloud business growth just about managed to beat analyst expectations in the third quarter of fiscal 2026, raising concerns that the company is not fully capitalizing on the demand for its Artificial Intelligence services. Microsoft Azure grew by 39% year-on-year during the quarter, adjusting for currency fluctuations. Analysts had projected growth to be at 38%. 20 million customers are now paying for Microsoft Copilot, higher than 15 million in the previous quarter. The company crossed an annual revenue run-rate of $37 billion for its AI business, more than double from the same period last year. Microsoft’s Productivity and Business Process group, which encompasses the Office productivity suite, LinkedIn and the Dynamics business software platform, delivered $35.01 billion in sales, up 17% from a year earlier and above the Street’s estimate of $34.43 billion.

MSFT in the third quarter of FY 26 has reported the adjusted earnings per share of $4.27, beating the analysts’ estimates for the adjusted earnings per share of $4.06. The company had reported the adjusted revenue growth of 18 percent to $82.89 billion in the first quarter of FY 26, beating the analysts’ estimates for revenue of $81.39 billion.

Microsoft now expects current quarter revenue to be between $86.7 billion to $87.8 billion, the mid-point for which, at $87.25 billion is lower than estimates of $87.53 billion. Azure will continue to grow between 39% to 40% in constant currency terms. However, this means that Microsoft’s operating margin could decline to 44% in the fourth quarter, lower than consensus projections of 44.6%. Gross margins at 67.6% were also the lowest since 2022. Hood blamed the shortfall on rising component costs and the instability in the Middle East, yet she revealed that the company is not letting these developments get in the way of its long-term ambitions in the artificial intelligence industry.

In addition, Microsoft spent $31.9 billion as capex during the quarter, up 49% year-on-year but lower than the consensus forecast of $34.9 billion. For the calendar year, Microsoft sees capex to be at $190 billion, including a $25 billion impact from higher component prices. Analysts had projected the figure to be $154.6 billion. Microsoft is at least taking steps to reduce its costs in other areas, notably by reducing its global workforce. Hood told analysts that the company’s total headcount will shrink year-over-year in calendar 2027.