Microsoft's Q2 FY25 earnings report delivered a mixed bag of results, showcasing strong cloud growth but disappointing investors with softer-than-expected Windows performance, leading to a 2.5% after-hours share price drop. The tech giant reported $62 billion in revenue (up 18% YoY) and $21.9 billion net income (up 33% YoY), beating analyst expectations but revealing concerning trends in its personal computing segment.

Financial Highlights

  • Revenue: $62 billion (18% YoY growth)
  • Net Income: $21.9 billion (33% YoY growth)
  • Earnings Per Share: $2.93 (vs $2.78 expected)
  • Commercial Cloud Revenue: $33.7 billion (24% YoY growth)
  • Windows OEM Revenue: Down 9% YoY

Segment Performance Breakdown

Productivity and Business Processes ($19.2B revenue)

  • Office Commercial products grew 15%
  • LinkedIn revenue increased 10%
  • Dynamics 365 surged 27%

Intelligent Cloud ($25.9B revenue)

  • Azure growth accelerated to 30% (28% constant currency)
  • Server products up 22%
  • Enterprise Mobility seats now at 246 million (15% increase)

More Personal Computing ($16.7B revenue)

  • Windows OEM revenue declined 9%
  • Xbox content/services revenue down 4%
  • Search/advertising revenue grew 8%
  • Surface devices revenue increased 3%

The AI Factor

Microsoft's $13 billion investment in OpenAI continues to pay dividends:
- Azure AI Services: Now used by 18,000 organizations (up from 11,000 last quarter)
- Copilot Adoption: 40% of Fortune 100 companies using Microsoft 365 Copilot
- AI Infrastructure: Azure ML revenue grew 80% YoY

Investor Concerns

Despite overall growth, several red flags emerged:
1. Windows Decline: 9% OEM revenue drop signals weak PC market
2. CapEx Spike: $14 billion quarterly investment (up 50% YoY) for AI infrastructure
3. Guidance: Next quarter cloud growth projected at 26-27% (below some expectations)

Leadership Commentary

CEO Satya Nadella emphasized AI transformation: "We've moved from talking about AI to applying AI at scale. By infusing AI across every layer of our tech stack, we're winning new customers and helping drive new benefits and productivity gains." CFO Amy Hood noted commercial bookings growth slowed to 13% (vs 18% last quarter), attributing this to "larger long-term Azure contracts being signed in prior periods."

What's Next for Microsoft?

The company outlined three strategic priorities:
1. AI Democratization: Expanding Copilot to more products and markets
2. Cloud Dominance: Building out AI-optimized datacenters
3. Windows Revival: Next-gen AI-powered Windows expected late 2025

Market Reaction

Analysts remain divided:
- Bull Case: Azure's growth and AI leadership justify premium valuation
- Bear Case: Slowing cloud growth and Windows weakness concerning
- Price Targets: Most maintained between $420-$460 range

The Bottom Line

Microsoft's earnings reveal an enterprise tech powerhouse successfully pivoting to AI, but facing consumer headwinds. The coming year will test whether AI revenues can offset traditional software declines and justify massive infrastructure investments.