Microsoft Q3 FY2026: Record Revenue, AI ARR Tops $37B, Capex Spike Drives Sell-Off

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What changed

Revenue grew from $81.3B in Q2 to $82.9B in Q3, with cloud revenue rising from $51.5B to $54.5B. AI ARR crossed $37B, up 123% YoY. Microsoft 365 Copilot seats grew 250% YoY to over 20M paid seats. The capex outlook shifted from 'decreasing' in Q2 to 'increasing' in Q3, with Q4 capex guidance above $40B and FY2026 capex targeted at $190B. The Maya 200 AI accelerator is now live in Iowa and Arizona data centers. Management introduced usage-based pricing for GitHub Copilot effective June 1, signaling a strategic shift toward blended seat-plus-consumption models.

Guidance delta

Q4 FY2026 revenue guidance of $86.7-87.8B implies roughly 14-15% YoY growth, with capex guidance exceeding $40B, a notable step-up from Q2's $37.5B. Prior Q3 guidance of $80.65-81.75B was exceeded, with actual revenue of $82.9B beating the high end. FY2026 capex target of $190B represents a significant acceleration. Guidance sentiment was maintained, but the capex outlook shifted from decreasing to increasing.

Key takeaways

• Record Q3 revenue of $82.9B beat consensus of $81.4B by 1.8%; EPS of $4.27 beat estimates of $4.06 by 5.2%.
• Cloud revenue reached $54.5B, up from $51.5B in Q2, with AI ARR exceeding $37B (+123% YoY).
• Microsoft 365 Copilot surpassed 20M paid seats, growing 250% YoY.
• Capex guidance rose to over $40B for Q4 and $190B for FY2026, a significant acceleration from prior quarters.
• Q4 revenue guidance of $86.7-87.8B implies continued double-digit growth despite macro uncertainty.
• The market initially reacted negatively with a 4.9% abnormal decline, but the stock subsequently drifted 10.4% higher.

Management priorities

• Scaling AI infrastructure with additional data centers and accelerator deployments globally.
• Transitioning to blended seat-plus-consumption pricing across productivity, coding, and security workloads.
• Expanding custom silicon with Maya 200 accelerator and Cobalt CPU deployments.
• Enhancing the Agent 365 control plane for agent governance, identity, and security.
• Deepening partnerships with OpenAI, NVIDIA, AMD, and Anthropic across the AI stack.