Important takeaways from Microsoft’s (MSFT) Q2 2025 earnings report

Despite positive second-quarter results, Microsoft’s (NASDAQ: MSFT) stock plunged in after-hours trading on Wednesday, as the market reacted negatively to a slowdown in the cloud business and the management’s cautious guidance. The weak sentiment also reflects investors’ concerns over the company’s heavy spending on AI and the returns being generated.

The Redmond-headquartered tech behemoth’s stock declined about 6% soon after the announcement, and the downturn continued on Thursday. The stock has reversed most of its recent gains. MSFT traded sideways throughout last year, underperforming the S&P 500 index. However, its long-term prospects look intact, considering the management’s growth strategy focused on innovation and AI-driven transformation.

Results Beat

In the second quarter, Microsoft’s net income increased to $24.11 billion or $3.23 per share from $21.87 billion or $2.93 per share in the previous year’s comparable period. Earnings beat estimates for the tenth consecutive quarter. Revenue totaled $69.6 billion in Q2, compared to $62.02 billion in the same period of 2024. The topline benefitted from a strong performance by the Intelligent Cloud division and beat estimates, continuing the recent trend.

The market’s reaction to the report shows it was expecting a better performance by Azure, the company’s cloud computing platform that has been in the spotlight amid steady growth and market share gain. Looking ahead, the management expects that continued strong demand for cloud and AI offerings across Microsoft Cloud will drive growth in the third quarter.

Outlook

Segment-wise, Q3 Productivity & Business Processes revenue is expected to grow between 11% and 12% in constant currency, while Intelligent Cloud revenue is seen increasing in the 19-20% range. The company expects to be AI capacity-constrained in the March quarter, and to become roughly in line with near-term demand by the end of fiscal 2025, aided by its heavy capital investments.

From Microsoft’s Q2 2025 earnings call transcript:

“With the strengthening of the U.S. dollar since October, we now expect FX to decrease total revenue growth by two points. Within the segments, we expect FX to decrease revenue growth by two points in Productivity and Business Processes and Intelligent Cloud and roughly one point in More Personal Computing. When compared to our October guidance assumptions on Q3 FX impact, this is a decrease to total revenue of roughly $1 billion. We expect FX to decrease COGS growth by approximately two points and operating expense growth by approximately one point.”

Microsoft’s stock was trading down 6% on Thursday afternoon. Hovering near $415, the price almost matches the value from 12 months ago.