Technology giant Microsoft (NASDAQ: MSFT) reported Q4 CY2025 results exceeding the market’s revenue expectations, with sales up 16.7% year on year to $81.27 billion. Its non-GAAP profit of $5.16 per share was 34.1% above analysts’ consensus estimates.
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Microsoft (MSFT) Q4 CY2025 Highlights:
- Revenue: $81.27 billion vs analyst estimates of $80.32 billion (1.2% beat)
- Operating Profit (GAAP): $38.28 billion vs analyst estimates of $36.62 billion (4.5% beat)
- EPS (GAAP): $5.16 vs analyst estimates of $3.85 (34.1% beat)
- Intelligent Cloud Revenue: $0.02 vs analyst estimates of $32.34 billion (1.8% beat)
- Business Software Revenue: $34.12 billion vs analyst estimates of $33.46 billion (2% beat)
- Personal Computing Revenue: $14.25 billion vs analyst estimates of $15.77 billion (9.7% miss)
- Gross Margin: 68%, in line with the same quarter last year
- Operating Margin: 47.1%, up from 45.5% in the same quarter last year
- Market Capitalization: $3.58 trillion
StockStory’s Take
Microsoft’s fourth quarter results were shaped by ongoing demand for its cloud and AI offerings, but the market’s response was notably negative. Management emphasized that strong growth in Microsoft Cloud, Azure, and business applications drove performance, while continued investment in AI infrastructure contributed to higher operating expenses. CEO Satya Nadella highlighted that “the Microsoft Cloud surpassed $50 billion in revenue for the first time,” reflecting accelerated adoption of AI-driven solutions and platform expansion. However, management acknowledged that higher capital expenditures and mixed signals from the personal computing segment created investor uncertainty.
Looking ahead, Microsoft’s outlook is closely tied to its ability to scale AI infrastructure and deliver value through both first-party and third-party cloud applications. Management expects demand for Microsoft 365 Copilot, GitHub Copilot, and AI-driven business applications to continue driving growth, but cautioned that capital allocation and supply constraints could affect the pace of expansion. CFO Amy Hood noted, “We must balance the need to have our incoming supply better meet growing Azure demand with expanding first-party AI usage,” and highlighted that ongoing investments in data centers and custom silicon will be critical for sustaining momentum in the coming quarters.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to robust AI-driven demand in the cloud, a broadened product portfolio, and ongoing investments in infrastructure and talent.
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AI-powered cloud momentum: Microsoft Cloud’s rapid growth was led by customer adoption of AI services, with products like Copilot and Azure AI workloads driving a 26% increase in cloud revenue. Nadella emphasized that AI is “diffusing into every layer of the tech stack,” creating new business opportunities and expanding the addressable market.
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Scalable infrastructure buildout: The company added nearly one gigawatt of data center capacity, investing heavily in GPUs, CPUs, and custom silicon such as the new Maya 200 accelerator. Nadella noted the Maya 200 “delivers 10 plus flops at FP4 precision with over 30% improved TCO compared to the latest generation hardware,” supporting the needs of high-scale AI workloads.
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Diversification of AI product suite: Management highlighted momentum in both enterprise and developer-facing AI tools. Microsoft 365 Copilot saw a 160% increase in seat additions, with daily active users up 10x year over year, while GitHub Copilot subscribers rose 75%. These platforms are seen as incremental revenue streams with high lifetime value.
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Personal Computing headwinds: The personal computing segment underperformed, with management citing ongoing softness in devices and gaming, as well as execution challenges in search and advertising. CFO Amy Hood acknowledged that “operating expenses increased 5% in constant currency, driven by the impairment charges in our gaming business.”
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Global demand and supply constraints: Management stated that customer demand for cloud and AI services continues to exceed available supply, prompting ongoing global expansion of data center capacity and investments in sovereignty solutions to address local regulatory requirements.
Drivers of Future Performance
Microsoft’s future performance will hinge on scaling AI infrastructure, balancing capital investment, and meeting growing enterprise demand for AI-powered solutions.
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AI platform expansion: Management expects continued strong demand for Copilot, Azure AI services, and custom agentic solutions across industries. The company believes that expanded Microsoft 365 Copilot and GitHub Copilot deployments will drive future revenue growth as customers increasingly integrate AI into workflows.
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Capital allocation and supply risks: Hood highlighted the need to balance capital spending between first-party AI applications, research and development, and Azure cloud capacity. Management warned that “rising memory prices would impact capital expenditures,” and that ongoing supply constraints could limit the pace of revenue growth in the near term.
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Personal computing and gaming recovery: While management sees ongoing challenges in the personal computing and gaming segments, they expect normalization in purchasing trends and inventory levels to support gradual improvement. However, they cautioned that volatility in memory pricing and consumer demand could create further headwinds.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will watch (1) the pace at which Microsoft can expand data center and silicon capacity to meet AI and cloud demand, (2) adoption and monetization trends for Copilot and agentic platforms across enterprise and developer segments, and (3) progress toward normalizing personal computing and gaming revenues. Shifts in memory pricing and supply chain efficiency will also be important indicators of future margin stability.
Microsoft currently trades at $452.03, down from $460 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).
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