Microsoft’s AI segment surges to a $37 billion annual run rate, driven by $30 Copilot add-ons sold to 400 million enterprise seats.
Microsoft reported its AI business reached a $37 billion annual run rate in Q3 FY26, up 123% year-over-year. The growth is fueled by $30-per-user Copilot add-ons sold to over 400 million commercial seats, generating 80%+ gross margins with near-zero acquisition costs.
Azure revenue grew 40%, while commercial remaining performance obligations nearly doubled to $627 billion. The company posted a fourth consecutive EPS beat at $4.27, with operating margins at 45.62% and return on equity at 33.28%. Analysts maintain near-unanimous Buy ratings despite a forward P/E of 20.
Competitors like AWS and Alphabet lack Microsoft’s embedded productivity suite and enterprise switching-cost moat, reinforcing its market position.