Microsoft beats Q3 FY26 estimates with 40% Azure growth and 123% AI revenue surge, shares down 27% from highs.

Microsoft reported strong Q3 FY26 results, surpassing revenue and EPS expectations with an 18% revenue increase and EPS of $4.27 versus $4.06 expected. Azure, its cloud platform, grew 40%, and AI-related revenue surged 123% year-over-year, highlighting robust demand. Despite these gains, Microsoft faces rising capital expenditures projected at $190 billion for 2026, with capacity limits slowing Azure's growth. Shares have dropped 27% from their peak and trade below the 15-year average P/E, even as EPS is forecasted to grow nearly 19% through FY28. The analyst sees the current share price decline as disconnected from the company's strong fundamentals and is increasing exposure aggressively.