Microsoft Earnings Analysis: FY25 Q2 (Premium)

I focus almost exclusively on the shrinking client side of Microsoft's business, which makes these quarterly analyses a bit difficult. But this time, I'm going to do something a bit different. Because there isn't much going on with that side of the house, I will instead focus almost exclusively on AI. Given the seismic changes this past week, one might have expected some fireworks during Microsoft's quarterly earnings conference call. And there were, given how dull these people are.

First, here are the top-line numbers.

Microsoft earned a net income of $24.1 billion on revenues of $69.6 billion in the quarter ending December 31, the second quarter of its fiscal 2025. Those figures represent gains of 10 percent and 12 percent year-over-year (YOY), respectively. It has three top-level business units, two of which are doing great:

Productivity and Business Processes: $29.4 billion in revenues, up 14 percent YOY. This was 42.2 percent of Microsoft's earnings.
Intelligent Cloud: $25.5 billion in revenues, up 19 percent YOY. This was 36.6 percent of Microsoft's earnings.
More Personal Computing: $14.7 billion, unchanged from the year-ago quarter. (Literally flat YOY.) This was 21.1 percent of Microsoft's earnings.

Looked at another way, the software giant attributed $40.9 billion of its $69.6 billion in revenues to the so-called "Microsoft Cloud," which is not a business unit of any kind, but is instead a rough metric compiled from across the company. What it's trying to communicate there is that 59 percent of Microsoft's revenues come from the cloud, directly or indirectly. Growth in Microsoft Cloud, which, again, does not exist, was 21 percent YOY. Point being, Microsoft is, was, and will continue to be a cloud superpower. One that today is heavily investing in, and marketing, AI.

And this is where I usually diverge from the traditional analysis of Microsoft's business: I could not care less about the cloud, especially the commercial cloud that dominates at Microsoft. That said, Microsoft's AI efforts are interesting, given that the software giant kicked off the current AI era and is still very much in a leadership position. So I will look at this part of the business, at least. In fact, I will do so in great detail.

Let's dive in.
? AI
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