Summary
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Microsoft reported Q2 FY2025 net income of $24.1B ($3.23 diluted EPS) on revenue of $69.6B, representing 12% YoY growth, driven by Azure and Microsoft 365 Commercial cloud.
Revenue growth accelerated to 12% YoY from the prior year's 12% growth, with operating income up 17% driven by cloud and AI demand, while capital expenditures nearly doubled to support AI infrastructure.
- Revenue increased 12% YoY to $69.6B, with Microsoft Cloud revenue up 21% to $40.9B.
- Net income rose 10% YoY to $24.1B, while diluted EPS increased 10% to $3.23.
- Azure and other cloud services revenue grew 31%, including 13 points from AI services which grew 157%.
Results That Matter
| Metric | Current Period | Prior Period | Change | Investor Takeaway |
|---|---|---|---|---|
Revenue | $69.6B | $62.0B | +12.3% | Growth driven by Intelligent Cloud and Productivity and Business Processes, with Azure and Microsoft 365 Commercial cloud as primary drivers. |
Operating income | $31.7B | $27.0B | +17.4% | Growth across all segments, with operating margin expanding to 45.5% from 43.6%. |
Operating margin | 45.5% | 43.6% | +1.9 ppts | Margin improvement driven by sales mix shift to higher margin businesses and operating leverage. |
Diluted EPS | $3.2 | $2.9 | +10.2% | EPS growth aligned with net income growth, reflecting stable share count. |
Earnings Quality & Cash Conversion
Other expense, net increased to $2.3B from $506M, primarily due to higher impairments on equity investments and net recognized losses on equity method investments, including OpenAI. Excluding these items, operating results reflect strong core performance.
Operating cash flow was $22.3B, slightly below net income of $24.1B, indicating solid cash conversion. Free cash flow was $6.5B after $15.8B in capital expenditures, down from $9.1B in the prior year due to increased AI infrastructure investments.
Value Drivers & Capital Allocation
Microsoft returned $11.2B to shareholders through $5.0B in share repurchases and $6.2B in dividends. Capital expenditures surged to $15.8B, nearly doubling YoY, to support cloud and AI infrastructure. The company also invested $1.4B in acquisitions and intangible assets.
Return on equity was 8.0% for the quarter, down from 9.2% in the prior year, reflecting increased equity base from retained earnings. Return on assets was 4.5%.
- $5.0B in share repurchases
- $6.2B in dividends paid
- $15.8B in capital expenditures, up 62% YoY
Forward Signals
Not disclosed—the filing does not provide specific quantitative guidance for future periods.
Known trends
- Management expects capital expenditures to increase in coming years to support growth in cloud offerings and AI infrastructure and training.
“We expect capital expenditures to increase in coming years to support growth in our cloud offerings and our investments in AI infrastructure and training.”
— Management
Risks
No risk factors found
The AI couldn't extract this section from the filing. The company probably didn't report it in a standard format.
Segments
| Segment | Revenue | Operating Income | Change | Commentary |
|---|---|---|---|---|
| Productivity and Business Processes | $29.4B | $16.9B | Revenue up 14% YoY, operating income up 16% | Growth driven by Microsoft 365 Commercial cloud (up 16%) and LinkedIn (up 9%). Operating margin remained strong at 57.4%. |
| Intelligent Cloud | $25.5B | $10.9B | Revenue up 19% YoY, operating income up 14% | Azure and other cloud services grew 31%, with AI services contributing 13 points of growth. Operating margin declined slightly due to AI infrastructure scaling. |
| More Personal Computing | $14.7B | $3.9B | Revenue flat YoY, operating income up 32% | Revenue flat as Gaming decline offset Search and Windows growth. Operating income surged due to sales mix shift to higher margin businesses. |
Balance Sheet & Liquidity
Leverage: Total debt (short-term + long-term) was $45.0B, with cash and short-term investments of $71.6B, resulting in a net cash position of $26.6B. Debt-to-equity ratio was 0.15.
Liquidity: Cash, cash equivalents, and short-term investments totaled $71.6B. Operating cash flow was $22.3B for the quarter, providing ample liquidity for operations, investments, and shareholder returns.
Cash flow: Cash flow — operating $22.3B, investing $-14.1B, financing $-11.2B.
Working capital: Current assets $147.1B vs. current liabilities $108.9B (current ratio 1.35x). A year earlier: $159.7B vs. $125.3B (1.27x).
Maturities & covenants
- As of December 31, 2024, $5.2B of long-term debt is current, and no short-term debt is outstanding.
- The company must maintain minimum liquidity of $1.0B under certain derivative agreements; as of December 31, 2024, cash investments exceeded $1.0B and long-term unsecured debt rating was AAA.
Notable Footnotes
| Item | Impact |
|---|---|
| OpenAI Investment | Microsoft has a total funding commitment of $13B to OpenAI, accounted for under the equity method. Other expense, net includes net recognized losses on equity method investments, including OpenAI, of $1.2B for the quarter. |
| Activision Blizzard Acquisition | The acquisition was completed on October 13, 2023, for $75.4B. Goodwill of $51.0B was recognized. The financial results are included in More Personal Computing. |
| Income Taxes - IRS Audit | The IRS is seeking an additional tax payment of $28.9B plus penalties and interest for tax years 2004-2013 related to intercompany transfer pricing. Microsoft disagrees and will contest. |
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AI-generated. Informational only, not investment advice. May be incomplete or contain errors. The authoritative source is always the original SEC filing.