MICROSOFT CORP (MSFT) Q4 2025 Earnings Summary

Executive Summary

Microsoft delivered a strong Q4 FY2025: revenue $76.44B (+18% y/y), diluted EPS $3.65 (+24% y/y), operating income $34.32B (+23% y/y), driven by broad-based Microsoft Cloud and Azure strength .
Key beats vs Wall Street: revenue beat by ~$2.57B and EPS beat by ~$0.27; EBITDA modestly below consensus; 36 EPS and 41 revenue estimates contributed to consensus*.
Azure and other cloud services grew 39% y/y; Microsoft Cloud revenue reached $46.7B (+27% y/y); commercial bookings topped $100B, RPO rose to $368B, signaling robust demand and backlog conversion .
Guidance sets FY2026 for double-digit revenue and operating income growth; Q1 FY2026 outlook: Azure ~37% cc growth, Microsoft Cloud GM ~67%, CapEx >$30B; capacity constraints expected through H1 FY2026 .
Catalysts: accelerating AI adoption (Copilot >100M MAU, Foundry token volumes), strong Azure migrations, and visibility via record bookings; near-term watchpoints include cloud gross margin mix and capacity timing .

What Went Well and What Went Wrong

What Went Well

Microsoft Cloud momentum: revenue $46.7B (+27% y/y) and bookings >$100B; RPO $368B (+37% y/y), with 35% recognized in next 12 months—strong visibility .
Azure acceleration: +39% y/y in Azure and other cloud services; capacity additions, efficiency gains, and large migrations (e.g., Nestlé SAP) underpin growth .
AI engagement and product traction: Copilot surpassed 100M MAU; Foundry processed >500 trillion tokens; GitHub Copilot reached 20M users; management emphasized platform diffusion across the stack .

Specific quote: “Microsoft Cloud revenue reaching $46.7 billion, up 27%... We significantly exceeded expectations with strong execution” — Amy Hood (CFO) .

What Went Wrong

Cloud gross margin compression: Microsoft Cloud GM at 68%, down 200bps y/y, reflecting AI infrastructure scaling; company GM 69%, down 100bps y/y .
Capacity constraints: despite bringing more capacity online, demand remains above supply; management expects constraints through H1 FY2026 .
On-premises server declines: down ~2–3% y/y; continuing shift to cloud and variability from end-period revenue recognition .

Financial Results

Headline Results vs Prior Periods and Estimates

Metric	Q4 2024	Q3 2025	Q4 2025	Consensus (Q4 2025)
Revenue ($USD Billions)	$64.73	$70.07	$76.44	$73.87*
Diluted EPS ($USD)	$2.95	$3.46	$3.65	$3.38*
Operating Income ($USD Billions)	$27.93	$32.00	$34.32	—
Net Income ($USD Billions)	$22.04	$25.82	$27.23	—
Company Gross Margin %	—	69%	69%	—
Operating Margin %	—	46%	45%	—

Notes: EPS and revenue consensus values are S&P Global/Capital IQ estimates (asterisked). Values retrieved from S&P Global*.

Segment Performance (Revenue and Operating Income)

Segment	Q4 2024 Revenue ($B)	Q4 2025 Revenue ($B)	Q4 2024 Op. Income ($B)	Q4 2025 Op. Income ($B)
Productivity & Business Processes	$28.63	$33.11	$15.71	$18.99
Intelligent Cloud	$23.79	$29.88	$9.84	$12.14
More Personal Computing	$12.32	$13.45	$2.38	$3.19
Total	$64.73	$76.44	$27.93	$34.32

KPIs and Operating Metrics

KPI	Q4 2025	Commentary
Microsoft Cloud Revenue ($B)	$46.70	+27% y/y; ahead of expectations
Azure & Other Cloud Services Growth	39% y/y	Strong core infra; demand > supply
Commercial Bookings ($B)	>$100	+37% y/y; largest ever; contract size expansion
RPO ($B)	$368	+37% y/y; 35% revenue within 12 months
Cloud GM %	68%	-200 bps y/y; AI infra scaling impact
Company GM %	69%	-100 bps y/y; mix shift to Azure
CapEx ($B)	$24.2	$6.5B financed leases included
FCF ($B)	$25.6	CFO $42.6B, tax rate ~17%
Shareholder Returns ($B)	$9.4	Dividends and buybacks

Business highlights in Q4: Xbox content/services +13% y/y; Search/news advertising ex-TAC +21% y/y; Windows OEM/devices +3% y/y; Dynamics 365 +23% y/y; LinkedIn +9% y/y .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue (Productivity & Business Processes)	Q1 FY2026	—	$32.2–$32.5B	New
Revenue (Intelligent Cloud)	Q1 FY2026	—	$30.1–$30.4B	New
Revenue (More Personal Computing)	Q1 FY2026	—	$12.4–$12.9B	New
Azure Growth (cc)	Q1 FY2026	—	~37%	New
Microsoft Cloud GM %	Q1 FY2026	~67% (for Q4 FY2025)	~67%	Maintained (period-over-period comparable metric)
CapEx	Q1 FY2026	Q4 FY2025 to increase sequentially	>$30B	Raised vs typical sequential levels
FY2026 Revenue & Op Income	FY2026	Double-digit growth expected	Double-digit growth expected	Maintained
FY2026 Operating Margin	FY2026	FY2025 margin up slightly y/y	FY2026 margin relatively unchanged y/y	New framework
Effective Tax Rate	Q1 FY2026	~19% (Q4 FY2025 guide)	19–20%	Narrowed range
Capacity Constraints	H1 FY2026	Capacity constrained beyond June	Remain constrained through H1 FY2026	Extended
Dividend	Next payment	—	$0.83/share payable Sept 11, 2025	Affirmed dividend cadence

FX: Q1 FY2026 expected to add ~2 pts to total revenue growth; ~3 pts to Productivity & Business Processes, ~1 pt to Intelligent Cloud and More Personal Computing .

Earnings Call Themes & Trends

Topic	Q-2 (Q2 FY2025)	Q-1 (Q3 FY2025)	Current (Q4 FY2025)	Trend
AI/Technology Initiatives	AI run-rate >$13B; efficiency gains, Foundry launched; Copilot expansion; OpenAI bookings	Foundry tokens 100T; 10k orgs using agents; Copilot adoption broadening; Microsoft Cloud $42.4B	Azure >$75B annual revenue; Foundry 500T tokens; Copilot >100M MAU; security platform advances	Accelerating platform diffusion
Capacity/Supply Chain	Capacity constrained in Q3; aim to balance by end FY2025	Constraints beyond June despite added capacity	Constrained through H1 FY2026	Constraints persist; demand > supply
Cloud Migrations	Mission-critical migrations (UBS mainframe)	Strong migrations; non-AI Azure outperformed	Large SAP migrations (Nestlé); multi-workload wins	Durable migration tailwinds
Product Performance (Copilot/GitHub)	Copilot seat expansions; GitHub momentum	GitHub Copilot user base expanding; Power Platform MAU growth	GitHub Copilot 20M users; Copilot group agents; strong retention	Adoption intensity up
Macro/Tariffs	—	Windows OEM inventory/tariff uncertainty	Windows OEM/devices +3%; inventory elevated	Normalizing sequentially
Gaming	Strong titles, cloud streaming records	Top publisher; PC Game Pass +45% y/y	Top publisher; Game Pass revenue near $5B	Improving monetization
Regulatory/Legal	10-K risk factors reiterated	—	Forward-looking risk disclosures	Stable disclosure cadence

Management Commentary

Strategy: “We’re innovating across the stack… Azure surpassed $75 billion in annual revenue, up 34 percent” — Satya Nadella (CEO) .
Demand/backlog: “Commercial bookings were over $100 billion… RPO increased to $368 billion” — Amy Hood (CFO) .
Efficiency focus: “Microsoft Cloud gross margin percentage was… 68%, down… from scaling AI infrastructure, partially offset by efficiency gains” — Amy Hood .
Capacity: “We currently expect to remain capacity constrained through the first half of our fiscal year” — Amy Hood .
Monetization: “Customers continue to adopt Copilot at a faster rate… with strong usage intensity” — Satya Nadella .

Q&A Highlights

Azure migration catalysts and durability: Management cited strong migrations (SAP/VMware), scaling cloud-native apps, and new AI workloads; emphasized “middle innings” for migrations .
AI monetization models: Blend of per-user tiers and consumption models, with throttling to match model/job; applies across M365, Dynamics, GitHub .
CapEx vs growth/backlog: Spend correlated to $368B backlog; growth to moderate in FY2026 with mix shifting to short-lived assets; parallel investments in software efficiency to improve yield .
Margins amid mix shift: Focus on product-led revenue growth and efficiency across stack; expectation for FY2026 operating margins relatively unchanged y/y .
Capacity timing: Even with accelerated lease deliveries and GPU/CPU deployments, demand improved faster; constraints expected through H1 FY2026 .

Estimates Context

Q4 FY2025 comparison to consensus:
- Revenue: Actual $76.44B vs $73.87B estimate* → beat by ~$2.57B.
- EPS (diluted): Actual $3.65 vs $3.38 estimate* → beat by ~$0.27.
- EBITDA: Actual $39.37B vs $40.29B estimate* → modest miss.
- Number of estimates: EPS (36), Revenue (41)*.

Values retrieved from S&P Global*.
Implication: Street likely revises near-term Azure/Cloud assumptions higher (bookings/backlog visibility), while trimming EBITDA margin expectations given continued AI infra scaling and capacity constraints through H1 FY2026 .

Key Takeaways for Investors

Azure momentum accelerating with large migrations and AI workloads; backlog and bookings provide revenue visibility into FY2026 despite capacity constraints .
Near-term GM pressure from AI scaling persists; expect Cloud GM ~67% in Q1 FY2026, with efficiency offsets as software optimizations compound over time .
Strong Copilot/Foundry traction signals durable AI monetization across per-user and consumption models; engagement intensity supports upsell/ARPU expansion .
Watch capacity timing (H1 FY2026), CapEx deployment (> $30B in Q1), and mix shift impacts on margins; operating margin targeted relatively unchanged y/y for FY2026 .
Segment outlook: Intelligent Cloud remains the growth engine; Productivity & Business Processes supported by E5/Copilot; More Personal Computing normalized with search strength and Xbox content pipeline .
Trading lens: Positive estimate revisions on revenue/EPS likely near-term; monitor margin commentary and capacity delivery milestones for sentiment swings; dividend cadence continued ($0.83 next payment) .
Medium-term thesis: Leadership across AI stack (infra, data, apps), massive installed base, and multi-year backlog underpin compounding growth and cash generation .

Additional Relevant Press Releases (Q4 FY2025)

Premier League and Microsoft announce five-year AI partnership to transform fan engagement; Microsoft becomes official cloud and AI partner .
Quarterly dividend declared: $0.83 per share, payable Sept. 11, 2025 .
Earnings press release/webcast availability announcement .