Microsoft's Q2 2025 Earnings Call: Unpacking Contradictions in Azure Growth, AI Costs, and Copilot Adoption

These are the key contradictions discussed in Microsoft's latest 2025Q2 earnings call, specifically including: Azure growth expectations and constraints, AI scaling costs, Copilot adoption, AI capacity constraints and Azure performance, and the impact of AI on IT spending and demand:



Microsoft Cloud and AI Revenue Growth:
- Microsoft Cloud surpassed $40 billion in revenue for the first time, up 21% year-over-year.
- The AI business surpassed an annual revenue run rate of $13 billion, up 175% year-over-year.
- Growth was driven by strong demand for AI offerings and continuous scaling of the fleet to meet increased demand.

Azure and AI Services Expansion:
- Azure and other cloud services revenue grew 31%, with AI services contributing 13% of this growth, which grew 157% year-over-year.
- The growth in AI services was driven by increased capacity and commitments from OpenAI, while non-AI services faced execution challenges.

Copilot Adoption and Usage:
- Microsoft 365 Copilot saw accelerated customer adoption, with new seat purchases and significant seat expansion, especially among larger enterprises.
- The number of people using Copilot daily more than doubled quarter-over-quarter, and usage intensity increased by 60%.
- The spread of Copilot across enterprise functions is driven by its integration with existing productivity tools and its role as a UI for AI.

Capital Expenditure and Infrastructure Investment:
- Capital expenditures in Q2 were $22.6 billion, focused on long-lived assets to support AI workloads over the next 15 years or more.
- The investment in infrastructure builds, including data centers and servers, is aimed at addressing both the near-term and long-term demands of AI workloads.

Commercial Bookings and OpenAI Commitments:
- Commercial bookings increased 67%, with a 75% increase in constant currency, significantly ahead of expectations.
- The growth was driven by Azure commitments from OpenAI, core annuity sales motions, and increased adoption of E5 and Microsoft 365 Copilot.