Microsoft reported strong Q2 2025 earnings with significant growth in cloud and AI services.

From Nasdaq: 2025-01-29 21:15:11

In the Q2 2025 Earnings Call, Microsoft reported over $40 billion in revenue from Microsoft Cloud, a 21% increase year over year. The AI business hit an annual revenue run rate of $13 billion, up 175% year over year. Satya Nadella discussed the efficiency gains in AI scaling laws and the continuous cycle of scaling globally. Azure is expanding data center capacity to support cloud and AI workloads. UBS recently migrated mainframe workloads to Azure, totaling 400 billion records and two petabytes of data. Microsoft Fabric now serves over 19,000 customers, making it the fastest-growing analytics product in history. Azure OpenAI apps doubled year over year, showing significant growth in adoption of SQL, hyperscale, and Cosmos DB.

Microsoft and OpenAI continue their strategic partnership, with OpenAI’s APIs exclusively running on Azure. Azure AI Foundry has over 200,000 monthly active users and supports OpenAI’s models and open-source models. GitHub Copilot has seen over 1 million sign-ups in the first week, with GitHub now home to 150 million developers.

Microsoft 365 Copilot, the UI for AI, boosts employee productivity with intelligent agents. Organizations like Novartis and Barclays are rapidly expanding their Copilot seats. Copilot usage intensity has increased by over 60% quarter over quarter, with over 160,000 organizations using Copilot Studio to create custom agents.

Dynamics 365 gains market share as companies like Ecolab and Lenovo switch to AI-powered apps. DAX Copilot is being used for 2 million monthly physician-patient encounters, up 54% quarter over quarter. Windows 11 devices are popular for enhanced security and AI capabilities, with developers building apps to leverage NPUs and DeepSeek’s R1 models.

Customers are choosing Copilot+ PCs for enhanced security and AI capabilities, with 15% of premium-priced laptops in the U.S. being Copilot+ PCs. Developers can soon run DeepSeek’s models on Copilot+ PCs and NVIDIA RTX GPUs on Windows PCs. The most powerful AI workstation for local development is a Windows PC running WSL2 powered by NVIDIA RTX GPUs. Microsoft continues to make progress with Secure Future initiative, introducing 80 new product capabilities. Security Copilot helps resolve incidents 30% faster, with data governance a top priority. LinkedIn sees increased engagement, with short-form videos growing rapidly. LinkedIn Premiums surpass $2 billion in annual revenue, and LinkedIn Marketing Solutions remains a B2B advertising leader.

Microsoft reports revenue of $69.6 billion, a 12% increase. Gross margin dollars and operating income both see double-digit growth. Commercial bookings rise 67%, driven by Azure commitments. Microsoft Cloud revenue reaches $40.9 billion, with a 21% growth. Company gross margin percentage increases to 69%.

Revenue from Productivity and Business Processes reaches $29.4 billion, growing 14%. Microsoft 365 Commercial sees a 16% increase in revenue. M365 commercial products revenue grows 13%, surpassing expectations. M365 consumer cloud revenue increases by 8%. M365 consumer subscriptions grow by 10%, with a mix shift to M365 basic. LinkedIn saw a 9% increase in revenue, with growth across all business lines. Dynamics 365 revenue increased 19%, slightly ahead of expectations. Azure non-AI services were slightly lower than expected, while Azure other cloud services revenue grew 31%. More Personal Computing revenue was relatively unchanged, with better-than-expected results in Windows OEM prebuilds and search advertising.

Azure growth included 13 points from AI services, which grew 157% year over year. In on-premises server business, revenue decreased 3% due to slower purchasing. Enterprise and Partner Services revenue decreased 1% with lower performance. More Personal Computing revenue was unchanged, driven by Windows OEM prebuilds and search advertising.

Microsoft reported a total revenue growth decrease of two points due to FX impacts. Commercial bookings are expected to be roughly flat year over year. Microsoft Cloud gross margin percentage is expected to be roughly 69%, down year over year. Productivity and Business Processes revenue is expected to grow between 11% and 12% in constant currency.

In Productivity and Business Processes, Microsoft expects revenue growth between 11% and 12% in constant currency. Microsoft 365 commercial cloud revenue growth should be between 14% and 15% in constant currency. M365 commercial products revenue is expected to be relatively unchanged year over year, with variability in revenue recognition depending on contract mix. Microsoft expects revenue growth in the mid- to high single digits for M365 and low to mid-single digits for LinkedIn. Azure revenue to grow between 31% and 32%. Windows OEM and devices revenue may decline. Search and news advertising revenue to grow in the mid-teens. Xbox content revenue to grow in the low to mid-single digits. Operating expenses to grow between 5% and 6%. Company expects double-digit revenue and operating income growth for the full fiscal year. In the latest quarter, Microsoft reported strong commercial bookings, but Azure fell short due to execution issues in the non-AI component. Despite this, Azure AI performed better than expected, thanks to improved delivery dates. The company is making adjustments to balance sales motions and investments to address the issue.

Microsoft CEO, Satya Nadella, highlighted the growth in AI workloads and enterprise services, emphasizing the importance of leaning into new design wins rather than protecting the past. The company is focused on scaling AI workloads and driving platform shifts to drive future growth.

During a Q&A session, an analyst asked for more details on Microsoft’s AI revenue beat, specifically regarding the success of Copilot. CFO Amy Hood provided insights into the strong performance of Azure AI and the growing impact of emerging AI workloads like Copilot, driving higher-than-expected revenue in the AI segment. M. Hood — Executive Vice President and Chief Financial Officer

Thank you, Karl. Operator, next question, please.

Operator

The next question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.

Keith Weiss — Analyst

Great. Thank you for taking my question. I wanted to ask about the impact of the recent cybersecurity attacks on Microsoft’s business. How are you seeing this impact play out, and what measures are you taking to address any potential vulnerabilities? Thank you.

Satya Nadella — Chair and Chief Executive Officer

Thank you for the question, Keith. As a company, we take cybersecurity very seriously, and we are constantly monitoring and enhancing our security measures to address any potential vulnerabilities. While we cannot discuss specific details for security reasons, rest assured that we are proactively working to protect our customers and their data from any potential threats. Our commitment to cybersecurity remains unwavering.

Microsoft is focusing on capex growth to meet customer contract demands, including AI infrastructure and commercial cloud needs. The pivot to CPU and GPU investment will correlate with revenue and customer contract delivery. The recent launch of Copilot chat and ThinkHarder feature aims to accelerate usage and agent building across Microsoft’s portfolio.

Satya Nadella discusses Microsoft’s Copilot portfolio, highlighting recent announcements and plans for further optimization. Inference cost reduction allows for broader deployment and more features across Microsoft products. The company is focused on using a combination of proprietary and open models to continuously optimize applications for latency and cost efficiency. A significant investment in foundry and app server technology is aimed at keeping pace with new models and providing an evergreen way for applications to benefit from innovation without incurring high development costs. Analysts are interested in the strength of Copilot, particularly in departmental deals and collaboration trends, signaling potential monetization opportunities. Commercial bookings and RPO saw a substantial increase, driven by Azure commitments and strong core motions, indicating broad-based growth and consistent execution across workloads. The company is optimistic about future growth and ongoing relationships with customers. The Motley Fool reminds readers to do their own research and not to solely rely on the transcript, with a disclaimer about potential errors or inaccuracies. The company has positions in and recommends Microsoft, offering options recommendations. A disclosure policy is also mentioned.

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