Microsoft's AI business in the cloud drives sales, but outlook disappoints

Microsoft's business results continue to show solid growth in almost all areas of the company. According to Microsoft CEO Satya Nadella, the AI business in particular is making good progress. For the year as a whole, he is forecasting growth of 175 percent in business with artificial intelligence (AI). The cloud business is also growing more strongly again, but the outlook for the next quarter is more subdued than market observers had expected. This is probably the reason Microsoft shares have fallen slightly on the stock market.

In the second quarter of fiscal year 2025, which ended in December 2024, the Group generated revenue of 69.6 billion US dollars. This is 12.3% more than in the same period of the previous year, when Microsoft was able to increase its revenue more than expected thanks to cloud growth and AI. Industry experts had expected a slightly lower turnover of 68.8 billion dollars.

Microsoft's operating profit rose by 17.1 percent year-on-year to 31.7 billion dollars. Net profit, on the other hand, grew less significantly, increasing by 10.2 percent to 24.1 billion dollars. According to Microsoft's annual report, diluted earnings per share amounted to 3.23 dollars per share. This is also ten percent more than in the previous year.

Cloud business remains the revenue driver

As before, the cloud business accounts for the largest share of Microsoft's revenue. "In this quarter, Microsoft Cloud revenue amounted to 40.9 billion dollars, an increase of 21 percent compared to the previous year," explained Microsoft CFO Amy Hood. This means that the cloud business accounts for almost 59 percent of the Group's total revenue. Revenue from the so-called “Intelligent Cloud”, on the other hand, grew slightly less strongly, by 19 percent to 25.5 billion dollars.

The growth rates in the other divisions are less pronounced. In the productivity and business sector, sales of commercial Office products and the corresponding cloud services increased by 14% year-on-year to 29.4 billion dollars. Office products and their cloud offerings for end customers, on the other hand, only grew by eight percent. Sales of the LinkedIn career network rose again by nine percent, while sales of Dynamics products and their cloud services increased by 15 percent.

Web search and advertising pick up, outlook disappointed

Microsoft's PC division contributed 14.7 billion dollars to the Group's total turnover, which according to the Group is on a par with the previous year. However, the figure at that time was 16.9 billion dollars. Despite this, Microsoft was recently able to sell four percent more Windows licenses and products to manufacturers. This includes hardware sales, which the company no longer reports separately. Sales of Xbox content and services rose by just two percent, while sales of search and news advertising increased by 21 percent.

For the current quarter, the third quarter of fiscal year 2025, Microsoft expects revenue of between 67.7 and 68.7 billion dollars, according to CNBC. Analysts had expected a significantly higher forecast of 69.8 billion dollars. Investors are therefore apparently disappointed, causing Microsoft's share price to fall by almost 5 percent in after-hours trading. The share had already gained five percent in value this month alone.

(fds)