Microsoft had a pretty solid quarter ending December 31, 2024. They pulled in $69.6 billion in revenue, which is a 12% increase from the same period last year. Operating income was up 17% at $31.7 billion, and net income rose 10% to $24.1 billion. Their diluted earnings per share also saw a 10% bump, hitting $3.23.
Satya Nadella, Microsoft’s CEO, highlighted their innovation across the tech stack and the massive opportunities in AI. The AI business alone has surpassed an annual revenue run rate of $13 billion, which is a 175% increase year-over-year. Amy Hood, the CFO, mentioned that Microsoft Cloud revenue was $40.9 billion, up 21% from last year.
In terms of business segments, Productivity and Business Processes brought in $29.4 billion (up 14%), Intelligent Cloud raked in $25.5 billion (up 19%), and More Personal Computing was relatively flat at $14.7 billion. They also returned $9.7 billion to shareholders through dividends and share repurchases.
Overall, Microsoft is balancing operational discipline with continued investments in cloud and AI infrastructure, aiming to keep the momentum going strong.
Microsoft’s Q2 FY25 earnings report has several implications for the market. The company reported a 12% increase in revenue, a 17% rise in operating income, and a 10% boost in net income, showcasing its strong performance and effective leveraging of investments in AI and cloud infrastructure.
The significant growth in Microsoft’s AI business, which has surpassed an annual revenue run rate of $13 billion, and the 21% increase in Microsoft Cloud revenue highlight the company’s robust position in these high-growth areas. Despite beating revenue and earnings expectations, Microsoft’s stock experienced a dip in after-hours trading, suggesting that investors may have had even higher expectations or concerns about specific segments, such as the slight miss in Intelligent Cloud revenue projections.
However, despite being crowned the world’s top games publisher in December 2024, Microsoft’s gaming revenue declined by 7% year-over-year, and Xbox hardware revenue saw a significant drop of 29%2. This decline is partly due to Microsoft’s shift away from focusing solely on its own hardware, as seen in their “This is an Xbox” ad campaign and the push to bring Xbox Game Studios games to other platforms. While Xbox content and services revenue grew by 2%, driven by Xbox Game Pass, the overall gaming segment faced challenges.
Additionally, the Devices segment saw a decline of 20% year-over-year. This drop was primarily driven by lower Surface and Windows OEM revenue, reflecting the broader challenges in the personal computing market. I’m not sure what Microsoft’s internal sales goals are for its Surface devices but it may be time to go back to the drawing board and start marketing them again across social media, expanding its distriubtion channels, and looking into more competitive pricing to reverse this almost six quarter trend.
Nevertheless, this report underscores Microsoft’s competitive edge in the tech industry, particularly in AI and cloud services, while also highlighting the challenges posed by emerging competitors like DeepSeek, which could push Microsoft and other tech giants to innovate and invest more aggressively.
Overall, Microsoft’s strong earnings performance reinforces its leadership in the tech industry, but the market’s reaction indicates that investors are closely watching for continued growth and innovation in key areas. You can read more about it here.
