Yun supports Microsoft's revenue growth accelerating by 18% last quarter, Azure's full-year revenue increased by 34%, AI spending reached a new high, and surged after hours | Earnings Report Insights

"Artificial Intelligence (AI) leader" Microsoft saw a significant acceleration in revenue and profit growth last quarter, surpassing Wall Street expectations, reflecting the impact of AI applications and public cloud consumption trends on its performance.

After a slowdown in revenue growth over the previous two quarters, Microsoft's cloud business, which directly benefits from AI technology applications, experienced a surge in revenue growth, with Azure and other cloud services revenue increasing nearly 40%, marking the highest quarterly growth rate in two and a half years. Microsoft disclosed Azure cloud revenue separately for the first time, with a full-year increase of over 30%. Microsoft's AI-related capital expenditures also exceeded expectations, alleviating concerns about a slowdown in AI spending.

Microsoft CEO Nadella stated, "Cloud computing and AI are the driving forces behind business transformation across industries. We are innovating across the technology landscape to help customers adapt and thrive in this new era."

After the earnings report was released, Microsoft's stock price, which had risen over 0.1%, saw its after-hours gains quickly expand, reaching nearly 8%. If this momentum continues after the market opens on Thursday, Microsoft will become the second company, after NVIDIA, to join the $4 trillion "club."

On July 30, Eastern Time, after the U.S. stock market closed, Microsoft announced its financial data for the fourth quarter of fiscal year 2025 (referred to as Q2) ending June 30, 2026, compared to the previous quarter referred to as Q1.

1) Key Financial Data

Revenue: Q2 operating revenue was $76.44 billion, a year-on-year increase of 18%, compared to analyst expectations of $73.89 billion, with Q1 showing a year-on-year growth of 13%.

EPS: Q2 diluted earnings per share (EPS) was $3.65, a year-on-year increase of 24%, compared to analyst expectations of $3.37, with Q1 showing a year-on-year growth of 17.7%.

Operating Profit: Q2 operating profit was $34.3 billion, a year-on-year increase of 23%, compared to a year-on-year growth of 16% in Q1.

Net Profit: Q2 net profit was $27.2 billion, a year-on-year increase of 24%, compared to a year-on-year growth of 18% in Q1.

Capital Expenditures: Including assets obtained through finance leases, total capital expenditures in Q2 were $24.2 billion, a year-on-year increase of 27%, compared to nearly 53% growth in Q1; of which, cash expenditures related to real estate and equipment were $17.1 billion, a year-on-year increase of 23%, compared to nearly 52% year-on-year growth in Q1.

2) Segment Business Data

Commercial Cloud: Including products such as Office and Azure, Microsoft's total commercial cloud revenue in Q2 was $46.7 billion, a year-on-year increase of 27%, compared to analyst expectations of $45.96 billion, with Q1 showing a year-on-year growth of 20%.

Intelligent Cloud: Including Azure public cloud, Windows Server, voice recognition software Nuance, and GitHub, the intelligent cloud business segment's revenue in Q2 was $29.9 billion, a year-on-year increase of 26%, compared to analyst expectations of $29.1 billion, with Q1 showing a year-on-year growth of 21%

Productivity and Business Processes: Including Office software such as Microsoft 365 Copilot AI tools, the Productivity and Business Processes segment reported revenue of $33.1 billion in the second quarter, a year-on-year increase of 16%, compared to a 10% increase in the first quarter.

More Personal Computing: Including Windows operating system, Surface hardware, Xbox consoles, and video game company Activision Blizzard, the More Personal Computing segment reported revenue of $13.5 billion in the second quarter, a year-on-year increase of 9%, compared to a 6% increase in the first quarter.

Second Quarter Revenue Achieves Highest Growth Rate in a Year and a Half, Azure Annual Revenue Exceeds $75 Billion

The financial report shows that Microsoft's revenue in the second quarter reversed the slowdown in growth seen in the previous two quarters, with year-on-year revenue growth accelerating from 13% in the first quarter to 18% in the second quarter, marking the highest quarterly growth rate since the end of 2023. Second quarter revenue exceeded analyst expectations by more than 3%. EPS earnings also accelerated growth, increasing from nearly 18% in the first quarter to 24%, which was 8.3% higher than analyst expectations.

The Intelligent Cloud segment, including server products and Azure, also saw revenue growth accelerate in the second quarter, with year-on-year growth increasing by 5 percentage points from 21% in the first quarter to 26%.

Excluding currency factors, revenue from Azure and other cloud services grew by 39% in the second quarter, surpassing the 33% growth rate in the first quarter, achieving the highest quarterly growth rate in two and a half years since the end of 2022. Analysts expect the growth rate for this type of revenue to slightly accelerate to 3.42% compared to the first quarter.

Microsoft CEO Nadella stated that for the entire fiscal year 2025, "Azure's revenue will exceed $75 billion, growing by 34%, driven by growth across all workloads."

Based on this calculation, Azure contributed nearly 27% of Microsoft's total revenue for the fiscal year, and the revenue growth rate of Azure is more than twice that of the company's overall revenue. Microsoft's total revenue for fiscal year 2025 is projected to be $281.7 billion, a 15% increase from the previous year.

Second Quarter Capital Expenditures Return to Growth, Up 13%

In the first quarter, Microsoft's capital expenditures, including leases, amounted to $21.4 billion. Although this represented a year-on-year increase of over 50%, it was a decrease of $1.2 billion, or 5.3%, compared to the previous quarter, marking the first quarter-on-quarter decline in over two years. This raised concerns among analysts about a potential slowdown in Microsoft's investment in AI data centers.

However, total capital expenditures of $24.2 billion in the second quarter set a record for a single quarter, returning to growth with an increase of $2.8 billion, or nearly 13.1%, compared to the first quarter, and exceeding analyst expectations of $23.17 billion by 4.4% Microsoft's spending data for the second quarter shows no signs of a slowdown in data center investments. Last week, Microsoft's rival parent company Alphabet also did not reflect a slowdown in "burning money" in AI. Alphabet raised its full-year capital expenditure guidance for 2025 to $85 billion, which is $10 billion higher than previously expected.