The tech giant reported its earnings on January 29, 2025, highlighting strong artificial intelligence (AI) performance and concerns surrounding its cloud segment.
Microsoft reported total revenues of $69.6 billion, higher than what the cocaine nose jobs of Wall Street expected. The company’s earnings per share were $3.23, exceeding the consensus estimate of $3.15.
Microsoft’s cloud revenue reached $40.9 billion, slightly below the anticipated $41.1 billion. The company’s cloud computing platform, Azure, saw a revenue increase of 31 per cent, which fell short of the expected 31.8 per cent growth.
AI emerged as a significant growth driver, with impressive annual revenue growth of 175 percent. The AI revenue run rate exceeded $13 billion, underscoring Microsoft’s commitment to artificial intelligence. The Intelligent Cloud segment posted revenues of $25.54 billion, slightly underperforming against the forecasted $25.89 billion.
Revenue in the Productivity and Business Processes segment increased by 14 per cent to $29.4 billion, signalling continued demand for Microsoft’s enterprise software solutions.
The More Personal Computing segment remained stagnant, generating $14.7 billion in revenue. The company also experienced a 29 per cent decline in Xbox hardware sales, reflecting challenges in the gaming hardware market.
Despite Microsoft’s overall strong performance, its stock price dropped by over 2 per cent in after-hours trading due to investor concerns over slowing cloud revenue growth. However, the stock rebounded shortly after the initial decline, indicating that investors remain confident in Microsoft’s long-term cunning plan.
Chief Executive Officer Satya Nadella said despite what Wall Street was saying, Vole’s Cloud segment had done really well – thanks to Microsoft’s AI advantage.
He reported that Azure AI offers top performance for AI training and inference along with a diverse selection of AI accelerators, including the latest from AMD and Nvidia and Microsoft's in-house chip, now has 53,000 customers. A third of those customers are new to the service within the past year.
Azure was a significant driver for Microsoft in the second quarter of 2024, with cloud revenue increasing by 20 per cent. He said that Microsoft's cloud segment had captured considerable investor attention in the previous quarter.
According to Nadella, Microsoft is shifting from discussing AI to applying it at scale by integrating it across every layer of its technology stack. This approach is helping the company win new customers and drive increased productivity and efficiency gains.
The tech giant was an early player in the AI race through its ongoing partnership with OpenAI, the creator of ChatGPT, and by developing its own AI tools and hardware. Nadella has consistently expressed a bullish stance on AI.
He highlighted several major companies, including Ally Financial, Walmart, and Coca-Cola, that are using Microsoft's AI tools.
Nadella reported that "Azure OpenAI and OpenAI's API on top of Azure" were major contributors to Microsoft's performance for the quarter. Chief Financial Officer Amy Hood noted that the 30 per cent, or 28 per cent in constant currency, growth seen in Azure and other cloud services revenue included six percentage points of the growth attributed to AI services.
