Microsoft's Q2 revenue is expected to be $68.864 billion, adjusted net income is $23.499 billion, and adjusted EPS is $3.132, according to Bloomberg's consistent expectations.
Microsoft is set to report FY25 second-quarter earnings results after market close on Wednesday, January 29, 2025.
Microsoft's Q2 revenue is expected to be $68.864 billion, adjusted net income is $23.499 billion, and adjusted EPS is $3.132, according to Bloomberg's consistent expectations.
Previous Quarter Review
Microsoft reported an earnings and revenue beat for the fiscal first quarter, but the company’s forecast called for slower growth than expected.
Here’s how the company performed, compared with analysts’ expectations based on a survey by LSEG:
Earnings per share: $3.30 vs. $3.10 expected
Revenue: $65.59 billion vs. $64.51 billion expected
Revenue increased 16% year over year in the quarter, which ended Sept. 30, according to a statement. Net income rose 11% to $24.67 billion from $22.29 billion in the year-ago quarter.
For the current quarter, Microsoft called for revenue in the range of $68.1 billion to $69.1 billion. That implies 10.6% growth at the middle of the range. Analysts surveyed by LSEG were looking for $69.83 billion in revenue.
Q4 Results Outlook
Microsoft's Azure cloud computing platform is likely to show signs of moderation in growth in Q2 as a result of capacity constraints in data centers. Therefore, even with continued demand for AI and cloud services, Microsoft will have slightly less ability to meet this. Given this outlook, I expect capital expenditures will remain high in Q2, above the $20 billion reported in Q1, to further support its position in AI.
On the point of AI, we should note the fantastic results the company is achieving in this area. Microsoft's AI services are positioned to deliver $10 billion in annual recurring revenue in Q2 2025. Moreover, in Q1 2025, AI services provided 12 percentage points to Azure's growth, a trend very likely to have remained constant or moderately increased through Q2.
The company's ongoing integration of Activision Blizzard will also likely continue to weigh on earnings in Q2. In Q2 2024 the company reported an operating loss of $440 million from the acquisition, despite $2 billion in additional revenue from Activision Blizzard. The weight on the company is largely due to integration efforts and restructuring expenses such as severance packages for laid-off employees. There is a lot to look forward to from the acquisition in the long term because Microsoft is pushing into cloud gaming with its Azure platform, and Activision Blizzard's extensive game portfolio makes these prospects much richer.
Microsoft's long-term vision is now heavily oriented around AI. In no small part, this has been supported by the company's $13 billion investment into OpenAI, the creator of ChatGPT. In many respects, Microsoft caught the AI lightning in a bottle here. It was certainly fortunate to be in the right place at the right time, as OpenAI was initially funded, heavily orchestrated, and even had its name coined by Elon Musk. Therefore, in an alternate reality, it's Musk basking in OpenAI's glory (no problem, though, because he created xAI in this reality). That said, Musk can't be credited with ChatGPT's commercial success, as he left relatively early in the company's development.
Microsoft, on the other hand, in pure capitalist fashion, has allocated capital to the first-mover at an uncannily fortunate moment in the industry's history. This sets up Microsoft shareholders for a robust long-term ride on the high-growth AI wave, and we'll see more of these positive benefits in Q2 for sure. However, as Microsoft works best as a long-term investment, I wouldn't get too caught up in its earnings results. Focus on the macro picture, which involves robust management, a market-leading AI position, a shrewd capital structure, and robust and growing free cash flow over many years.
Analyst's opinions
Microsoft could be in "pole position" to benefit from a surge in AI-related spending this year, according to analysts at Morgan Stanley. The company recently unveiled plans to spend around $80 billion on data centers this year as it expands its AI-focused strategy to train existing models and roll out cloud-based applications to its client base.
Microsoft is seen as "the best-positioned franchise to gain from an improving spending backdrop," said Morgan Stanley analyst Keith Weiss, who carries an 'overweight' rating and a $548 stock price on the tech giant.
Wells Fargo reiterated Microsoft's Overweight rating and $515 price target ahead of the company's fiscal year 2025 second quarter results on Jan. 29.
Analysts led by Michael Turrin said they see a balanced setup into the second quarter results — given expected feedback from partners, which suggested that Microsoft Cloud revenue/bookings continue to benefit from ongoing consolidation across software; the company's leading position in AI (especially Azure AI); and some end of year budget flush.
The analysts noted that they are expecting the second quarter as a trough in growth before Azure improvements drive a second half re-acceleration on top-line into low-to-mid teens.
