Microsoft's cloud computing platform Azure delivered below expectations
Despite poor cloud performance, productivity and personal computing divisions outperformed expectations.
• Microsoft reported Q2 revenue of $69.6 billion, beating Wall Street's $68.9 billion forecast.
• Shares fell 4.5% in after-hours trading as investors worried about slowing cloud growth and AI competition.
• Despite poor cloud performance, productivity and personal computing divisions outperformed expectations.
In a climate of mounting scrutiny over AI investments, Microsoft delivered a robust second-quarter earnings report for fiscal year 2025 (ended Dec. 31st 2024), yet turbulence in its cloud business sent investors into a frenzy.
The tech giant posted a 12% year-over-year rise in revenue to $69.6 billion, surpassing Wall Street’s $68.9 billion forecast. Net income climbed to $24.1 billion, up from $21.87 billion a year earlier, with diluted earnings per share of $3.23 beating expectations.
Despite this financial strength, the company's stock tumbled 4.5% in after-hours trading as investors grappled with concerns over slowing cloud growth and mounting AI competition.
At the heart of the disappointment was Azure, Microsoft's cloud computing platform – its primary revenue driver, which delivered a 31% growth—down from 33% growth in the previous quarter and short of analyst expectations.
The company also posted a record $22.6 billion in capital expenditures, aimed at boosting capacity for AI services, raising investors' anxiety about the long-term payoff from these costly AI ventures.
Worries over Microsoft’s AI spending were compounded by stiffening competition from China’s AI upstart DeepSeek, which recently shocked the industry with a highly cost-efficient “reasoning” model. Its rise has sparked scrutiny over the billions being funneled into AI infrastructure by Microsoft and its rivals.
Adding to investor unease, Microsoft's guidance for the current quarter disappointed, with revenue forecasts between $67.7 billion and $68.7 billion, missing Wall Street’s consensus of $69.8 billion. Projected Azure growth of 31% to 32% also fell short of the expected 33.4%.
But while cloud growth slowed, the company’s other divisions provided much-needed bright spots. The Productivity and Business Processes segment, which includes Office and LinkedIn, grew nearly 14% to $29.4 billion, exceeding expectations. The personal computing segment, which includes Windows, Bing, and Xbox, held steady at $14.65 billion, surpassing analyst forecasts.
As investors question how Microsoft will balance aggressive AI investments with financial discipline, the company’s ability to outmaneuver emerging rivals and regain confidence will be crucial in the coming quarters.
Oyinebiladou Omemu
