[Microsoft Q4 Earnings]
FY2025 Azure and Cloud Services Revenue Exceeds $75 Billion
Microsoft’s strategy includes balancing profitability and restructuring, normalizing ‘Profitable Layoffs’
Fierce Capital Competition in Cloud and AI with Google and Others
Tensions with OpenAI… Concerns Over ‘Strategic Partnership’ Uncertainty
Microsoft delivered Q4 results that exceeded market expectations, driven by strong growth in its cloud division. For the first time, the company revealed that its core cloud business Azure achieved annual revenue exceeding $75 billion (approximately 99 trillion won), once again confirming its position in the cloud dominance competition. Microsoft’s stock price surged over 7% in after-hours trading.
On July 30 (local time), Microsoft announced Q4 FY2025 (April-June) revenue of $76.44 billion and earnings per share (EPS) of $3.65. These figures exceeded market forecasts compiled by LSEG (revenue: $73.81 billion, EPS: $3.37).
Total revenue increased 18% compared to the same period last year ($64.7 billion), while net income grew 24% from $22.04 billion to $27.23 billion during the same period.
Microsoft CEO Satya Nadella emphasized in a statement that “cloud and AI are the key drivers leading business innovation across all industries and sectors.” He noted, “We continue to innovate across our entire technology stack,” adding, “This year, Azure surpassed $75 billion in revenue based on growth across all workload areas.”
Microsoft’s Intelligent Cloud business revenue continues to show an upward trend. (Source: Yahoo Finance)
FY2025 Azure and Cloud Services Revenue Exceeds $75 Billion
The most notable aspect of this earnings announcement was Microsoft’s first-time disclosure of Azure’s annual revenue. For FY2025, total revenue from Azure and other cloud services exceeded $75 billion, representing 34% growth year-over-year. Looking at Q4 alone, Azure revenue surged 39% year-over-year, significantly exceeding market expectations (around 35%).
The ‘Intelligent Cloud’ segment, which includes the entire cloud division, recorded revenue of $29.88 billion, a 26% increase year-over-year. This exceeded the market forecast of $28.92 billion provided by research firm StreetAccount.
The ‘Productivity and Business Processes’ segment also showed solid growth. This division, which includes Office products and LinkedIn, recorded revenue of $33.11 billion, a 16% increase compared to the same period last year. This surpassed the market forecast of $32.12 billion.
The Personal Computing segment, which includes Windows operating system, search advertising, devices, and gaming, recorded revenue of $13.45 billion, a 9% increase from last year. Windows licenses and device revenue particularly increased by 3%, while market research firm Gartner analyzed that PC shipments grew 4.4% during the quarter.
Microsoft’s stock price has risen 22% this year, trading near all-time highs. During the same period, the S&P 500 index rose only about 8%. As of 5:30 PM that day, Microsoft’s stock price had risen nearly 8% in after-hours trading.
Satya Nadella, Microsoft CEO (left), and Sam Altman, OpenAI CEO (Source: Sam Altman X (Twitter) @sama)
① Balancing Profitability and Restructuring: Normalizing ‘Profitable Layoffs’
Despite strong performance, Microsoft laid off over 6,000 employees during the last quarter. This demonstrates what renowned tech analyst Om Malik has pointed out as the structural establishment of ‘profitable layoffs normalization’ across the tech industry.
While layoffs were previously part of restructuring and crisis response measures, they have now become a process of strategic investment transition. Microsoft is controlling costs through layoffs while simultaneously investing massive capital in next-generation technologies like AI infrastructure and Copilot. An era of “making money while changing direction” has arrived.
② Fierce Capital Competition in Cloud and AI
This earnings announcement shows similar trends to Alphabet’s (Google) ‘earnings surprise’ last week. Google revised its capital expenditure plan upward to $85 billion this year to strengthen AI and cloud capabilities. Microsoft also grew Azure revenue to an annual scale of $75 billion, recording an impressive 34% year-over-year growth.
AI is no longer the future of tech companies but has become their current core business. Companies are pouring funds into cloud infrastructure and generative AI products, which has become an essential factor for medium to long-term growth even if it pressures short-term performance.
Regarding Microsoft’s strong performance, Wedbush analyst Dan Ives recently projected in an investor note that “the real effects of AI will emerge in earnest in FY26.” He analyzed that “while AI use cases will increase noticeably in 2025, the true inflection point will be in 2026 when CIOs’ investment plans begin in earnest.”
Bank of America Global Research’s Brad Sills also evaluated that “Microsoft’s AI-based Copilot software could become the company’s new growth driver going forward.”
③ ‘Strategic Partnership’ Uncertainty: Tensions with OpenAI
However, the close partnership between Microsoft and OpenAI currently stands at a subtle crossroads. This is expected to become a new variable.
OpenAI has heavily relied on Microsoft’s cloud computing infrastructure, and in return, Microsoft has enjoyed access rights to OpenAI’s intellectual property (IP) and revenue.
However, OpenAI has recently shown moves to reduce this dependency by signing cloud contracts with Oracle and Google as well. The contract between both parties also includes provisions that could limit Microsoft’s access if OpenAI’s systems reach ‘Artificial General Intelligence (AGI)’.
This also means Microsoft is dealing with an AI partner that it has ‘invested in but cannot control’. The Wall Street Journal (WSJ) reported that Microsoft is currently in negotiations to neutralize or minimize this provision, and the next few months will be a critical period determining the direction of negotiations.
Microsoft has recorded excellent performance in both profitability and innovation. However, beneath the surface, a fierce underwater war is unfolding over AI era dominance, involving workforce restructuring, strategic large-scale investments, and partnership fractures. The tensions and competition over who will hold technological hegemony in the AI era are ongoing.
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