On January 29, Microsoft reported its Q2 earnings beating the bottom line expectations but failed to beat the estimate for its cloud business. Following the announcement, Microsoft stock fell by more than 4%. Microsoft’s Commercial Cloud segment, which includes cloud services, brought in $40 billion, a 21% increase from last year, though it fell short of the $41.1 billion expected by analysts.
(Image Credit: Microsoft)The company’s intelligent cloud business, which covers Azure, earned $25.5 billion, just missing the $25.8 billion forecast. Satya Nadella, Microsoft CEO said, “We are innovating across our tech stack and helping customers unlock the full ROI of AI to capture the massive opportunity ahead. Already, our AI business has surpassed an annual revenue run rate of $13 billion, up 175% year-over-year.”
Microsoft Q2 Earnings – Cloud Growth Misses Estimates
During its earnings call, Microsoft predicted its Intelligent Cloud revenue for the next quarter would be between $25.9 billion and $26.2 billion, causing shares to drop. The announcement comes as Wall Street processes the fallout from DeepSeek’s effect on the AI industry and Silicon Valley’s top tech companies.
For the quarter, Microsoft posted earnings per share (EPS) of $3.23 on $69.6 billion in revenue. Analysts had expected EPS of $3.13 on $68.8 billion in revenue, according to Bloomberg. A year ago, the company reported EPS of $2.93 on $62 billion in revenue.
Microsoft 2025 Outlook: – What’s Ahead for the Company?
Microsoft is planning to invest billions of dollars with its Big Tech Cohort in AI data centers, and the company will spend $80 billion solely in 2025. Microsoft is also aiming to boost PC sales with its Copilot+ PC lineup, where AI-powered PCs can run AI apps directly on the device instead of relying on the cloud. However, there aren’t many compelling reasons yet for consumers to upgrade, as improvements in performance and battery life remain the main draw for new PCs.
However, China’s DeepSeek has stunned the tech sector, it claims to train its AI model on systems that use less power than leading AI chips manufactured by giant rivals like Microsoft-backed OpenAI, Google, and Meta.
Microsoft Stock Declines
On Wednesday, Microsoft stock tumbled more than 4% in extended trading following the Q2 earnings report. Ahead of the earnings report, Microsoft shares had risen 5%, outpacing the S&P 500, which had gained around 3% during the same time.
Although Microsoft is a major player in the AI boom, its stock has underperformed compared to its rivals. As of Monday, Microsoft shares had risen only 5% over the past year, while Amazon (AMZN) and Google saw gains of 44% and 26%, respectively.
