Azure Drives Microsoft's AI Strategy: Wait for Q3 Before Buying

Microsoft’s MSFT third-quarter fiscal 2025 results, scheduled to be reported on April 30, are likely to be driven by steady growth in its cloud platform, Azure. (Read Now: Should You Buy, Sell or Hold Microsoft Stock Before Q3 Earnings?)

Microsoft made significant strides in artificial intelligence during its third quarter of fiscal 2025, positioning Azure as a centerpiece of its AI strategy. The company expanded the Azure AI Foundry platform with several new models and capabilities, including OpenAI o3-mini and DeepSeek R1. These additions bolstered Microsoft's AI model catalog, which now exceeds 1,800 options for enterprise customers. MSFT also introduced Azure AI Foundry Labs as a hub for cutting-edge AI research and experiments, bringing innovations like the Muse World and Human Action Model to customers more rapidly.

Intelligent Cloud Segment Likely to Drive Results in Q3

The Intelligent Cloud segment continues as Microsoft's primary growth engine, with revenue projections between $25.9 billion and $26.2 billion. Our model estimate for this segment is pegged at $26.06 billion, indicating growth of 17.7% from the figure reported in the year-ago quarter. Azure remains the standout performer, with anticipated revenue growth of 31-32% at constant currency, reinforcing Microsoft's AI-focused strategy. 

Microsoft Corporation Price and EPS Surprise

Microsoft Corporation price-eps-surprise | Microsoft Corporation Quote

See the Zacks Earnings Calendar to stay ahead of market-making news.

Enhanced Ecosystem Through Strategic Tech Alliances in Q3

The fiscal third quarter saw Microsoft deepen its technology partnerships to strengthen its AI infrastructure and enterprise offerings. The company expanded its long-standing collaboration with NVIDIA NVDA, integrating NVIDIA NIM microservices and the NVIDIA AgentIQ toolkit into Azure AI Foundry to deliver unprecedented efficiency and performance for AI workloads. Microsoft also announced the general availability of Azure ND GB200 V6 virtual machines accelerated by NVIDIA's Blackwell platform, significantly boosting AI computing capabilities. On the enterprise front, Microsoft and SAP SAP launched the RISE with SAP on Microsoft Azure Global Acceleration Program, a joint initiative to help organizations transition seamlessly to the cloud while unlocking the full potential of their SAP investments. These partnerships fortified Microsoft's position at the intersection of cloud infrastructure and enterprise applications, potentially expanding its addressable market.

Strategic Partnerships of MSFT in Q3 Strengthen Market Position

The quarter featured several strategic partnerships that should enhance Microsoft's competitive position. The company expanded its collaboration with Anduril Industries to advance the U.S. Army's Integrated Visual Augmentation System program, establishing Azure as Anduril's preferred cloud platform. Microsoft also formed a $1 billion, seven-year partnership with WSP Global to accelerate digital transformation in the architecture, engineering, and construction industry. Additionally, Microsoft joined the New Jersey AI Hub as a founding partner alongside CoreWeave CRWV, Princeton University, and the state government, further extending its AI ecosystem.

Microsoft's Agentic AI and Automation Advancements in Q3

Microsoft introduced key innovations in autonomous AI capabilities during the to-be reported quarter, including the Responses API and Computer-Using Agent in Azure AI Foundry. These features enable AI systems to navigate software interfaces, execute tasks, and automate complex workflows. The company also enhanced its security portfolio with AI agents in Microsoft Security Copilot designed to handle high-volume security tasks across phishing triage, alert management, and vulnerability remediation. These developments position Microsoft to capitalize on the growing demand for AI automation in enterprise settings.

Healthcare Sector Progress in Q3

In healthcare, Microsoft unveiled Dragon Copilot, an AI assistant for clinical workflows that combines natural language voice dictation with ambient listening capabilities. The solution aims to address clinician burnout and improve patient experiences while driving financial impact for healthcare organizations. This release strengthens Microsoft's healthcare portfolio and demonstrates the company's commitment to industry-specific AI solutions.

Investment Perspective

While Microsoft's AI innovations and strategic partnerships create a compelling growth narrative, investors should consider maintaining current positions rather than adding ahead of earnings. The stock has already priced in significant AI-driven growth expectations, and the market will closely scrutinize whether these investments translate to immediate revenue acceleration. The impressive Azure growth forecast of 31-32% will be a key metric to watch, as any deviation could significantly impact market sentiment. Waiting for clarity on the monetization timeline for recent AI innovations may provide a better entry point for potential investors. MSFT currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research