EPS of $3.23 increased by 10.2% from previous year
Gross margin of 68.7%
Net income of 24.11B
""We will see exponentially more demand as AI becomes more efficient and accessible." - Satya Nadella" - Satya Nadella
Microsoft Corporation (MSFT) Q2 2025 Results: Strong Cloud Growth and AI Momentum
Executive Summary
Microsoft Corporation reported strong financial results for Q2 2025, with total revenues reaching $69.6 billion, a year-over-year growth of 12%. The firm continues to show resilience in various segments, particularly in its cloud operations, which surpassed $40 billion in revenue for the first time, driven by increasing AI deployments and a significant surge in commercial bookings. CEO Satya Nadella noted that the AI business alone achieved a revenue run rate exceeding $13 billion, reflecting a dramatic 175% increase year-over-year. Overall, Microsoft has successfully maintained double-digit growth metrics, underscoring its robust competitive positioning within the technology sector.
Management comments highlighted the strategic focus on cloud infrastructure expansion, AI capabilities, and a strong demand for Microsoft 365 and Azure services, suggesting sustained momentum moving forward.
**Net Income**: $24.1 billion, up 10.2% YoY, with an EPS of $3.23
**Gross Margin**: 68.7%
**Operating Margin**: 45.5%
Financial Highlights
### Income Statement Highlights
- Revenue: $69.6 billion, up 12% YoY
- Gross Profit: $47.8 billion, 12.8% increase YoY
- Net Income: $24.1 billion, up 10.2% YoY, with an EPS of $3.23
### Financial Ratios
- Gross Margin: 68.7%
- Operating Margin: 45.5%
- Net Margin: 34.6%
- R&D Expenses: $7.9 billion, indicating continued investment in innovation
### Cash Flow Analysis
- Cash Flow from Operations: $22.3 billion, up 18% YoY
- Free Cash Flow: $6.5 billion, down 29% YoY due to capital expenditures
- Capital Expenditures: $15.8 billion, driven by long-term cloud and AI infrastructure investments.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
69.63B
12.27%
6.17%
Gross Profit
47.83B
12.82%
5.16%
Operating Income
31.65B
17.09%
3.60%
Net Income
24.11B
10.23%
-2.27%
EPS
3.24
10.20%
-2.41%
Key Financial Ratios
currentRatio
1.35
grossProfitMargin
68.7%
operatingProfitMargin
45.5%
netProfitMargin
34.6%
returnOnAssets
4.52%
returnOnEquity
7.96%
debtEquityRatio
0.21
operatingCashFlowPerShare
$3
freeCashFlowPerShare
$0.87
dividendPayoutRatio
25.6%
priceToBookRatio
10.35
priceEarningsRatio
32.5
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Cloud Growth: Satya Nadella emphasized that the Microsoft Cloud surpassed $40 billion in revenue for the first time, marking a significant milestone.
- AI Revenue Surge: The AI segment, led by innovative offerings like Microsoft 365 Copilot, achieved a remarkable growth rate of 175%. Nadella stated, "Enterprises are beginning to move from proof-of-concepts to enterprise-wide deployments to unlock the full ROI of AI."
- Commercial Bookings: CFO Amy Hood reported a 75% increase in commercial bookings (in constant currency), driven largely by Azure commitments from notable partners, including OpenAI.
"We will see exponentially more demand as AI becomes more efficient and accessible." - Satya Nadella
— Satya Nadella
"Our AI business annual revenue run rate surpassed $13 billion and was above expectations." - Amy Hood
— Amy Hood
Forward Guidance
Management provided a robust outlook for the upcoming quarters, with expectations of continued growth in both the cloud and AI sectors. Specifically, Microsoft anticipates cloud revenue to grow between 19% and 20% in constant currency for Q3 2025, suggesting strong demand continuing through the fiscal year. The upcoming investments in AI infrastructure and capabilities position Microsoft well for long-term advantages in the tech landscape.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MSFT Focus
68.69%
45.50%
7.96%
32.50%
PANW
73.50%
10.60%
4.19%
113.72%
PATH
80.00%
-32.70%
-4.70%
-20.07%
SQ
35.60%
8.65%
1.01%
50.48%
ADBE
87.90%
35.50%
10.60%
31.74%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Based on Q2 2025 results, Microsoft's investment in cloud infrastructure and AI technology positions it favorably for sustained growth. The company’s ability to deliver innovative solutions while maintaining strong financial metrics makes it an attractive investment opportunity. Potential investors should monitor Microsoft’s execution of its cloud strategy and adaptability in a competitive landscape. Moreover, ongoing developments in AI could drive substantial future revenue growth, reaffirming Microsoft's status as a leader in technology.
Key Investment Factors
Growth Potential
1. Continued expansion of Microsoft's cloud services, with expected revenue growth from both AI and traditional cloud offerings. 2. Strong adoption of AI solutions within enterprises, positioning Microsoft as a leader in this rapidly evolving segment.
Profitability Risk
1. Potential execution challenges in delivering on AI and cloud service promises amid growing competition. 2. Exposure to macroeconomic factors that could impact enterprise spending on tech solutions.
Financial Position
1. Healthy balance sheet with a cash position of $17.5 billion and total liabilities of approximately $231.2 billion. 2. Robust operating cash flow supports ongoing investments and shareholder returns.
SWOT Analysis
Strengths
Strong brand recognition and market leadership in cloud computing and software.
Significant R&D investment propelling innovation in AI and cloud services.
Diversified revenue streams across various sectors, including enterprise software, gaming, and search.