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Microsoft reported sales of $69.6 billion for the quarter, up 12% on the previous year. Operating income rose by 17% to $31.7 billion, while net income increased by 10% to $24.1 billion. Earnings per diluted share also rose by 10%, to $3.23. Microsoft's results exceeded analysts' expectations, who had forecast slightly lower sales. Earnings per share also beat estimates, demonstrating the robustness of Microsoft's business in an uncertain economic environment.
Microsoft CEO Satya Nadella highlighted the continued robustness of Microsoft Cloud, which for the first time generated more than $40 billion in revenues, up 21% on the previous year. Annual sales for Microsoft's AI business exceeded $13 billion, recording impressive growth of 175%. Moreover, the 75% year-on-year growth in bookings (boosted by OpenAI) is very encouraging.
Even so, Azure has continued to expand its data center capacity, doubling its total capacity over the past three years. Nadella also mentioned that Microsoft added more capacity last year than any other year in its history. These statements are laudatory for Microsoft, but Azure's figures (31% YoY growth) are slightly below analysts' consensus expectations (31.8% expected, they're quibbling a bit there aren't they?) and down on Q1 2025 (then 33-34%) due to GTM execution problems, which explains the stock's contraction on the stock market at the opening this Thursday afternoon (-5%).
Amy Hood, Microsoft's CFO, noted that Microsoft Cloud's gross margin was 70%, in line with expectations, despite a 2-point year-on-year decline due to AI infrastructure scale. Operating expenses rose by 5%, while operating margins increased by 2 points to 45%.
Highlights of the quarter
Microsoft continued to invest heavily in AI, with the annual sales rate for this business exceeding $13 billion, an increase of 175% year-on-year. The company has also strengthened its cloud infrastructure, with significant investments in long-term assets to support future monetization.
In the field of AI, Microsoft strengthened its strategic partnership with OpenAI, enabling the company to mutually benefit from each other's growth: "With OpenAI's APIs running exclusively on Azure, customers can rely on us to access the world's most advanced models," said Nadella.
Performance by segment
Productivity and Business Processes: This segment generated sales of $29.4 billion, up 14%. Revenues from Microsoft 365 commercial products and cloud services rose by 15%, while those from Dynamics 365 increased by 19%. Intelligent Cloud: Sales in this segment reached $25.5 billion, an increase of 19%. Revenues from server products and cloud services rose by 21%, with Azure and other cloud services growing by 31%. More Personal Computing: This segment generated $14.7 billion in revenues, remaining relatively stable compared to the previous year. Revenues from manufacturers and Windows devices rose by 4%, and advertising revenues from search and news engines grew by 21%.
Cash allocation and return to shareholders
During the quarter, Microsoft returned $9.7 billion to shareholders in the form of dividends and share buybacks. This strategy of return to shareholders reflects the company's confidence in its ability to generate solid cash flow in the future.
Outlook for the next quarter and year
For the third quarter of fiscal 2025, Microsoft expects continued revenue growth, supported by demand for its cloud and AI offerings. The company anticipates Azure sales growth of between 31% and 32% in constant currency (again, slight disappointment on growth due to GTM execution issues and capacity constraints).
"Our data centers, networks, racks and silicon come together as a complete system to power both today's cloud workloads and next-generation AI workloads," he said.
