Microsoft (MSFT) Q4 EPS Jumps 24%

Key Points

• EPS rose to $3.65 in Q4 FY2025, beating analyst expectations and rising 24% compared to the prior-year period.

• Revenue reached $76.4 billion, coming in 3.4% above estimates, with strong gains in cloud and AI offerings.

• Microsoft Cloud and Azure growth drove results.

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Microsoft (NASDAQ:MSFT), a global leader in software, cloud services, and artificial intelligence (AI), posted fiscal 2025 fourth-quarter earnings on Wednesday, July 30, that topped analysts' consensus expectations. Earnings per share of $3.65 and revenue of $76.4 billion beat analyst estimates of $3.37 and $73.9 billion, respectively. Operating income and net income also rose over 20% year over year, highlighted by outsized expansion in AI and cloud services that was accompanied by substantial capital investment to maintain the company’s competitive edge.

Source: Microsoft. Note: Analysts' consensus estimates for the quarter provided by FactSet.

Business Overview and Strategic Focus

Microsoft operates at the intersection of productivity software, cloud infrastructure, AI, gaming, and business solutions. It sells everything from Windows operating systems for personal computers and Xbox gaming consoles to large-scale cloud computing via its Azure division, and productivity solutions such as Microsoft 365 and LinkedIn. The company also offers developer tools that support software creators and machine-learning professionals.

Recently, Microsoft has sharpened its focus on cloud computing and artificial intelligence. Azure, its cloud platform, now underpins core business growth. The integration of AI throughout its services -- spanning from developer tools to workplace productivity software -- has become a driving force. Key success factors include maintaining cloud leadership, accelerating AI adoption, and delivering product innovation at scale while managing heavy investment in data center expansion and sustainable technologies.

Quarter Highlights: Cloud Growth, AI Acceleration, and Capital Commitments

In the quarter, Microsoft recorded sharply higher revenue and profit, propelled by robust demand for its Azure cloud platform and AI-related services. Azure’s annual revenue surpassed $75 billion in FY2025, with quarterly segment revenue in Intelligent Cloud increasing 26% compared to the prior-year period. Azure and other cloud services grew 39% compared to the prior-year period. Microsoft Cloud revenue also climbed 27% compared to the prior-year period. The company processed over 100 trillion tokens in AI workloads in Q3 FY2025.

Financial leverage continued to improve as the company enjoyed better margins in AI businesses than during its earlier transition to the cloud. Operating income (GAAP) increased by 23% to $34.3 billion in Q4 FY2025, and net income rose 24% to $27.2 billion compared to the prior-year period. In the conference call, management noted “accelerating demand, with customers in every industry expanding their footprints on Azure.” However, the company also reported that property and equipment additions for FY2025 were $64.6 billion, a 45% increase compared to FY2024.

Product and segment performance were broadly positive. Productivity and Business Processes revenue, which includes Office 365 cloud offerings, grew 16% to $33.1 billion (GAAP) in Q4 FY2025. Microsoft 365 commercial and consumer products and cloud services both saw double-digit growth in Q4 FY2025, with Dynamics cloud applications revenue increasing 18% compared to the prior-year period. LinkedIn revenue, which is part of the same segment, increased 9% in Q4 FY2025 but continued to be affected by weakness in hiring markets. In Intelligent Cloud, Server products and cloud services revenue grew 27% in Q4 FY2025. The More Personal Computing segment (including Windows, Devices, and Xbox) posted 9% GAAP growth in Q4 FY2025, with Windows devices revenue increased 3% compared to the prior-year period, Xbox content and services revenue increased 13% compared to the prior-year period, and search and news advertising revenue increased 21% compared to the prior-year period.

The company delivered hundreds of product releases, services, and enhancements across product categories. These innovations are part of its strategy to stay ahead of rivals in both cloud and AI. Management cited the scale of integrated AI and a superior security posture as current differentiators. The company also referenced record research and development spending in Q4 FY2025 (GAAP), totaling $8.83 billion -- up 9.6% from last year -- as it works to keep pace with evolving technology and customer needs.

The company distributed $9.4 billion in dividends and share repurchases in Q4 FY2025.

Looking Ahead: Guidance, Risks, and Key Areas for Investors

For future periods, management did not provide numerical guidance in the earnings release. However, it stated that high levels of capital expenditures will continue into fiscal 2026, though at a slower growth rate than in fiscal 2025, and with spending focused on assets that return more direct revenue benefit. The company expects ongoing customer demand for cloud and AI, but also noted that “AI capacity constraints beyond June” could limit near-term supply relative to demand. Key operational themes for upcoming quarters include sustaining leadership in cloud and AI, prudent capital allocation for infrastructure investment, and driving efficiency gains as the company builds out data centers worldwide.

Microsoft’s commitment to environmental and sustainability goals will face greater scrutiny in light of the company’s expanding use of resources for AI workloads and global data center scale. No guidance was offered on future dividend changes.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.