MSFT F3Q26 First Take: Results once again highlight a steady profile, with most key metrics slightly beating expectations but by modest margins. Ex-FX tailwinds, revenue and profit growth momentum was broadly in line with last quarter. Azure grew 39% at cc, a slight acceleration, but it lagged the sharper re-acceleration seen at Google Cloud and AWS.

Specifically:

1) Total revenue rose 15% ex-FX, with growth flat vs. last quarter. OP grew 20%, also flat vs. last quarter, but ex-FX profit growth slowed to 16% this quarter vs. 19% last quarter. Overall delivery was stable.

2) Azure grew 39% at cc, up 100bps QoQ and roughly in line with the Street. While not matching competitors' strong acceleration, it shows signs of re-acceleration. Recent developments suggest OpenAI order pullbacks weighed on growth.

3) The other two segments also came in slightly better than expected. Productivity & Business Processes (PBP) revenue grew 17% at cc, up 100bps and steadily improving. More Personal Computing (MPC) declined 1%, much better than the Street's -5%.

4) On other metrics, AI ARR reached 37 bn, ~150% above Amazon's disclosed 15 bn, keeping MSFT in the lead by absolute AI scale. However, with the OpenAI partnership further downgraded, new enterprise bookings fell 4% YoY (ex-OAI +7%).

Similarly, RPO was 627 bn, up 99% YoY, but only +26% ex-OpenAI orders. Based on Dolphin Research's preliminary estimate, the implied OAI order balance fell by about 5 bn QoQ this quarter.

5) Despite subdued top-line growth, profit delivery was solid, driven by upside in PBP and MPC. Cloud OP margin came in at 39.7%, below expectations and down ~180bps YoY, reflecting capex investment and revenue mix shifts.

6) Capex was 31.9 bn, down over 5 bn QoQ and below expectations, likely reflecting OAI order adjustments and the corresponding pacing. The company guided CY26 total capex to 190 bn, implying >50 bn per quarter over the next three quarters, potentially surpassing Amazon as the most aggressive CSP spender.

7) For next quarter, Azure revenue is guided to grow 39–40% at cc, steady but not particularly surprising. Overall revenue guidance roughly matches expectations (aside from the usual conservatism in MPC), but the profit guide is slightly light; the implied OPM midpoint is 44%, below expectations and 44.9% a year ago, suggesting greater margin pressure next quarter.$Microsoft(MSFT.US)