Microsoft 2025 Q4 Earnings Beats Expectations with Net Income Up 24%

Microsoft (MSFT), ranking 2nd by market capitalization reported its fiscal 2025 Q4 earnings on Jul 30th, 2025. Microsoft exceeded Wall Street expectations, reporting a revenue of $76.4 billion compared to the anticipated $73.83 billion. The company also delivered an adjusted EPS of $3.65, surpassing analyst predictions of $3.38. Looking ahead, Microsoft provided robust guidance for fiscal year 2026, expecting double-digit revenue and operating income growth driven by continued investments in AI infrastructure. The company anticipates capital expenditures over $30 billion in Q1 to meet a contracted backlog of $368 billion, signaling confidence in its long-term growth strategy.

Revenue
Microsoft reported notable growth across its business segments in 2025 Q4. The Productivity and Business Processes sector generated $33.11 billion, reflecting strong demand for Microsoft 365 and LinkedIn services. The Intelligent Cloud segment achieved $29.88 billion, boosted by robust Azure performance. Meanwhile, the More Personal Computing division contributed $13.45 billion, underpinned by increased Windows OEM and Xbox content sales. Overall, Microsoft's revenue climbed to $76.44 billion, marking an 18.1% increase from the previous year.

Earnings/Net Income
Microsoft's EPS rose 23.6% to $3.66 in 2025 Q4 from $2.96 in 2024 Q4, marking continued earnings growth. Meanwhile, the company's profitability strengthened with net income of $27.23 billion in 2025 Q4, marking 23.6% growth from $22.04 billion in 2024 Q4. Remarkably, the company has sustained profitability for more than 20 years over the corresponding fiscal quarter, underscoring strong operational resilience. The EPS performance is commendable and reflects Microsoft's robust financial health.

Price Action
The stock price of Microsoft has edged down 0.37% during the latest trading day, has edged up 1.46% during the most recent full trading week, and has climbed 3.49% month-to-date.

Post-Earnings Price Action Review
Investors employing the strategy of purchasing Microsoft shares on the earnings release date and selling them 30 days later experienced moderate returns. However, this approach underperformed the broader market, generating a compound annual growth rate (CAGR) of 7.91%, which lagged behind the benchmark by 44.93%. Despite exhibiting minimal risk with a maximum drawdown of 0.00%, the strategy's Sharpe ratio of 0.46 indicated limited growth potential. While the strategy offered some stability, it lacked significant upside, prompting investors to reconsider its effectiveness relative to market trends. Overall, the post-earnings price action suggests that while Microsoft's shares offer some dependable returns, they may not always align with broader market growth dynamics.

CEO Commentary
Satya Nadella, Chairman and CEO, expressed that Microsoft concluded a record fiscal year, with the Microsoft Cloud surpassing $168 billion in annual revenue, reflecting a 23% increase. He highlighted Azure’s revenue growth of 34%, driven by AI infrastructure advancements and significant migrations, exemplified by Nestle’s successful transition of over 200 SAP instances to Azure. Nadella emphasized the company’s commitment to AI, noting the introduction of the Microsoft Sovereign Cloud and developments in Microsoft Fabric, which achieved a 55% revenue increase. He conveyed optimism regarding the future, stating, “I have never been more confident in Microsoft's opportunity to drive long-term growth and define what the future looks like.”

Guidance
For FY '26, Microsoft expects to achieve double-digit revenue and operating income growth. Capital expenditures are projected to exceed $30 billion in Q1, with a focus on meeting a contracted backlog of $368 billion. The company anticipates Microsoft Cloud gross margin percentage to be approximately 67%, driven by ongoing investments in AI infrastructure. For Q1, revenue guidance includes $32.2 billion to $32.5 billion for Productivity and Business Processes and $30.1 billion to $30.4 billion for Intelligent Cloud, with Azure revenue growth expected around 37% in constant currency.

Additional News
Microsoft is making strategic moves to enhance its leadership team and expand its market presence. Recently, the company announced the appointment of a new Chief Technology Officer, aimed at bolstering its technological advancements and AI initiatives. Additionally, Microsoft has launched a significant share buyback program, returning $9.4 billion to shareholders through dividends and repurchases in Q4 FY2025. In a bid to strengthen its cloud-first strategy, Microsoft has acquired a cloud infrastructure firm to accelerate its Azure capabilities and broaden its service offerings. These developments reflect Microsoft's commitment to maintaining its competitive edge and driving innovation in the tech industry.