Microsoft (MSFT) Q2 earnings report 2025

Microsoft shares tumbled as much as 5% in extended trading Wednesday after the software company issued fiscal second-quarter results that included lighter growth in Azure cloud computing services than expected. The company also gave a disappointing quarterly revenue forecast.

Here’s how the company did in comparison with Wall Street expectations, based on a survey of analysts by LSEG:

• Earnings per share: $3.23 vs. $3.11 expected
• Revenue: $69.63 billion vs. $68.78 billion expected

With respect to guidance, Amy Hood, Microsoft’s finance chief, called for $67.7 billion to $68.7 billion in fiscal third-quarter revenue compared with the $69.78 billion consensus from LSEG.

Microsoft’s revenue grew 12.3% year over year in the fiscal second quarter, which ended on Dec. 31, according to a statement. That represents the slowest growth since mid-2023. Net income of $24.11 billion was up from $21.87 billion in the same quarter a year ago.

The company’s Intelligent Cloud segment, which contains the Azure cloud, contributed $25.54 billion in revenue. That was up about 19% but below the $25.83 billion consensus among analysts polled by StreetAccount.

Revenue from Azure and other cloud services jumped 31%, down from 33% in the prior quarter. Microsoft now has a $13 billion annualized revenue run rate for artificial intelligence, CEO Satya Nadella was quoted as saying in the statement.

Of the growth in the fiscal second quarter, 13 percentage points came from AI. Microsoft does not disclose Azure revenue in dollars. Analysts polled by CNBC and StreetAccount had been looking for 31.9% and 31.1% growth, respectively.

For the fiscal third quarter, Hood sees 31% to 32% in Azure growth at constant currency, as the company addresses execution challenges and continues to endure capacity constraints. StreetAccount’s consensus at constant currency was 33.4%. In October, Hood had said Azure growth would accelerate in the second half of the fiscal year in comparison with the first half.

Microsoft might revamp its sales function to better address market conditions.

“Primarily these are customers we reach through partners and through some more indirect methods of selling,” Hood said. “And really the art form there is as these customers which we reach in this way are trying to balance. How do you do an AI workload with continuing some of the work they’ve done on migrations and other fundamentals? We then took our sales motions in the summer and really changed to try to balance those two.”

Microsoft’s Productivity and Business Processes segment, which includes Office productivity software subscriptions and LinkedIn, posted $29.44 billion in fiscal second-quarter revenue. That was up 13.9% and more than StreetAccount’s $28.89 billion consensus.

The More Personal Computing unit, which includes Windows, Bing, Surface and Xbox, delivered $14.65 billion in revenue. The number was flat year over year and higher than the StreetAccount consensus of $14.29 billion. 

Sales of devices and of Windows operating system licenses from device makers were up 4%. Technology industry researcher Gartner estimated that the PC shipments increased 1.4% in the quarter.

Microsoft had $2.29 billion in its “other expense” line item. In October Hood had projected $1.5 billion in “other expense,” mainly because of Microsoft’s share of expected losses at OpenAI, in which Microsoft has invested nearly $14 billion to date.

During the fiscal second quarter, Microsoft announced the Windows 365 Cloud Link, a PC that corporate workers can use to access their applications and files stored in the cloud. The company’s GitHub unit, with 150 million developers, announced support for artificial intelligence models from Anthropic and Google for a programming chatbot in addition to existing support for OpenAI. Microsoft also invested an additional $750 million into OpenAI during the quarter.

“OpenAI has a lot more coming soon, so stay tuned,” Nadella said on the conference call.

Microsoft shares slipped 2% on Monday as investors considered the implications of AI models from DeepSeek, a Chinese lab. DeepSeek in December introduced an open-source model that the lab said it trained for $5.6 million, excluding costs of data and earlier research. That would make it more efficient than models from major U.S. companies. And last week, DeepSeek said its newest model, R1, outperformed OpenAI’s in some tests.

DeepSeek’s R1 model is now available through Microsoft’s Azure AI Foundry and through GitHub, and it will soon be available to run on Copilot+ PCs, Nadella said on the call.

“AI scaling laws are continuing to compound across both pre-training and inference-time compute,” he said. “We ourselves have been seeing significant efficiency gains in both training and inference for years now. On inference, we have typically seen more than 2X price-performance gain for every hardware generation, and more than 10X for every model generation due to software optimizations.”

The company reported $15.80 billion in fiscal second-quarter capital expenditures, excluding finance leases. The consensus among analysts polled by Visible Alpha was $15.70 billion.

Capital expenditures should be similar in the fiscal third quarter and again in the fourth quarter, Hood said. And in the 2026 fiscal year, capital spending growth should be slower than in the current fiscal year.

“The mix of spend will begin to shift back to short-lived assets, which are more correlated to revenue growth,” Hood said. On Jan. 21, Microsoft was absent from a White House press conference for the Stargate AI infrastructure project involving OpenAI that could attract up to $500 billion in investment.

Before the earnings release, Microsoft shares were up 5% so far in 2025, while the S&P 500 index had gained about 3% in the same period.

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