Q2 2025 (it’s actually Q4 for the company’s fiscal year) was Microsoft’s 50th anniversary. The company celebrated by laying off more than 6,000 people while throwing billions at AI technology which many fear will antiquate vast numbers of human jobs over the next several decades.
Who knows, maybe there won’t be any more humans at the company when Microsoft celebrates its centennial in 2075.
Anyway, Satya Nadella rang up $76.4 billion in revenue last quarter, results released after the bell on Wednesday showed. That was up 18% YoY and easily better than consensus, which expected 14% top-line growth.
More notably (certainly for investors), Azure growth accelerated to 39% YoY, both in GAAP and constant-currency terms. That’s 4ppt faster (give or take) than analysts expected.
As the figure shows, last quarter marked the briskest pace for Azure sales growth since the September quarter of 2022, when growth was on a downswing.
“Cloud and AI is the driving force of business transformation across every industry and sector,” Nadella declared. Amy Hood called the final quarter of the company’s fiscal year “strong.” Naturally, she too touted cloud performance.
This was billed as another “show me” quarter for big US tech in the context of what skeptics (assuming you can find any) worry is overspend on AI capex. Long story short, investors want to see the ROI.
With the caveat that the market tends to trade Microsoft earnings off Hood’s comments from the analyst call, it’s hard to imagine the company’s results not being greeted warmly. Net income of $27.2 billion was up 24% YoY, and EPS of $3.65 beat by $0.25. For the full fiscal year, Azure sales rose 34%.
Meanwhile, over at Meta, sales of $47.52 billion for Q2 beat easily and rose 22% YoY. That was the fastest pace since the June quarter of 2024. The current quarter guide was very impressive. Meta sees Q3 sales of between $47.5 billion and $50.5 billion. Even the low-end of that range is higher than consensus as it stood headed into results.
Taking the midpoint, the Q3 sales guide’s 6% ahead of the Street. If realized, that’d represent 21% growth over the September quarter last year.
Meta was under a lot of scrutiny for its capex plans even as big-tech companies in the AI era go. On that front, the top-end of the full-year capex guide was unchanged at $72 billion, even as the low-end rose to $66 billion from $64 billion. Taking the midpoint there, Meta will spend around $30 billion more on capex this year versus last.
Since no one thought Meta would come in at the low-end of the capex range anyway, I doubt the $2 billion bump will give investors pause, particularly considering more AI spend’s arguably better as long as Mark Zuckerberg has something to show for it. And as long as Meta beats estimates, which it did. Easily. EPS of $7.14 was nearly $1.20 ahead of consensus. Operating margin was 500bps higher versus the same quarter a year ago, and net income rose 36%.
“We had a strong quarter both in terms of our business and community,” Zuckerberg said, adding that he’s “excited to build personal superintelligence for everyone in the world.” Meta has, of course, been in the news this month for poaching Apple talent. Tim Cook’s lost four key researchers to Zuckerberg’s advanced AI initiative in recent weeks.
Bottom line: Microsoft and Meta both delivered on Wednesday, and in a big way by appearances.
META rev gro accel to +21.6% YOY from only +16.1% in 1Q, and sequential +12.3% not shabby. US gro accelerated, Europe gro stayed high, APAC lagged at only +7%.
GM +80bp to 82.1%, a new high going back at last 5 years. OM +500bp to 43%, nearly back to 2020’s Covid-boosted level. No-one cares about Reality Lab losses, just call it part of META’s R&D and move on. No-one cares about massive capex, not today anyway, and yes depreciation was up but less than rev growth.
Can we quibble – yes, year-ago comps in 2Q were signif easier vs 1Q and arguably the 2Q acceleration merely reflects the easier comp, but tech analysts don’t seem to think in “comps” and anyway comps in 3Q get easier again vs 2Q. Comps don’t get incrementally harder until 4Q.
Oh, and lots of superintelligence and AI glasses talk on the call. Guided 3Q well above. Blowout quarter for sure.
The highest and best use of AI today is to generate insipidly compellingly time wasting social media and embedding ads in that social media, and META owns both the AI and the social media so it has the magic formula, for now.
MSFT rev gro +18.1% from +13.3% last qtr, sequential +9%. All segments accelerated, the highlight of course being Azure’s +39% vs last qtr +33% and guid +35%. GM -100bp, OM +180bp. Capex a staggering $24.2BN ($17BN cash, $7BN finance leases so not in cash flow statement), but zero analyst fussbudgetting on call. Most of capex now for long-lived assets (land, buildings, power). Big beat on rev and EPS and everything else. For Sep qtr, guid implies +13-14% rev gro, back down to Mar qtr rate, note comp +80bp harder then sharply easier Dec qtr. Guid GM -200bp, big opex decline sequentially, consistent with big layoffs underway now. Guid implies about $3.61, street went from $3.56 to $3.62. Next year capex will decline and mix shift to short-lived assets (CPU, GPU, networking), so cash capex may not decline. Nadella talks about AI, quantum, AI, Microsoft database/datalayer, and AI. Interestingly, zero information on growth or size of AI revenue; in previous quarters, have given hints so we can triangulate. Azure commentary implies great bulk of growth is in non-AI workloads but AI optionality used in the sales pitch. Boasts 100MM Copilot users but no revenue given. Street gushing like teen fangirls. I think more to quibble about than for META but who cares right now. Party on!