Microsoft delivers an earning layer but misses where it means most

On January 30, 2025By Littum

Microsoft could not shake the bear thesis with its fiscal numbers from 2025 on Wednesday, causing the stock to fall more than 5% in continuation of trade. Despite beating top line and bottom line estimates, the software giant’s disappointing cloud revenue and soft guidance that are renewed generates that AI expenses do not generate sufficient returns. Revenue rose 12% years over year to $ 69.6 billion in its fiscal 2025 second quarter and beat Gade Consensus estimate of $ 68.78 billion, according to LSEG data. Earnings per Stock rose 10% from last year to $ 3.23, in front of EPS stimates of $ 3.11, showed LSEG data. Microsoft Why do we own it: Microsoft is a core of global productivity thanks to its Office 365 Suite and Hybrid Cloud Platform Azure. The company also proves to be a key provider of artificial intelligence tools that are partly due to its large investment in Openai, starting up behind chatgpt. We also like what it is doing in the video game industry when we seem to grow recurring revenue streams. Competitors: Amazon, Alphabet and Salesforce weight in portfolio: 2.75% Latest purchase: 5 August 2024 Init: 4 December 2017 Bottom line Overall, it was a solid quarter. The company beat the analysts’ estimates on several line items and released better than expected operating margins. However, Microsoft did not meet the bar where it counts the most: Azure Cloud Revenue Growth. There were some notable results in the quarter. For its AI business, the annual revenue rate rate exceeded $ 13 billion and contributed 13 percentage points to Azure Revenue Growth, up from 12 points last quarter. But the results could still meet the brand due to non-aai cloud-related execution problems, which is something extremely rare for this high quality business. Plus, the bullish case about an azure revenue growth reacceleration in the second half of the year stumbled as management provided the same guidance it gave it the last quarter. As for what Chinese Start-up Deepseeks Cheap AI model means for Microsoft, CEO Satya Nadella was quite bullish on the possibilities and comments that “When AI becomes more efficient and accessible, we will see exponentially more demand.” Later, he added that when the cost of cloud computing falls, inference calculation prices also fall, giving customers the opportunity to consume more with more apps written. “When I refer to these models that are pretty powerful, it is unimaginable to think that we are here in a kind of beginning of ’25 where you can run a model on the PC a model that required rather massive cloud rather massive cloud infrastructure “, Nadella explained. “So that type of optimization means that AI will be much more ubiquitous, and therefore for a hyperscaler like us, a PC platform provider like us, this is all good news, what I’m worried.” This may sound promising for the future, but there is still a lot of uncertainty about DEESEEK’s influence. Until more is known, the market wants to see faster sky revenue grow to justify the billions of dollars that the company invests in scaling AI infrastructure, and Microsoft simply did not deliver this quarter or with its prospects. We expressed some concerns about Microsoft last week during our monthly meeting, and while it is difficult to deviate from such a dominant company, this earnings report did not change our vision. We repeat our 2 rating and maintain our $ 500 price target. MSFT 1Y MOUNTAIN MICROSOFT’s 1-year Return Quarterly results Productivity and business processes reported revenue and operating income that exceeded the consensus forecast with double-digit percentage growth, although the gross margin percentage fell slightly due to continued scaling of AI-Inrastructure. Microsoft 365 Commercial Sky Income growth increased 15% years over years with seat growth up 7%. Microsoft 365 consumer cloud income growth increased 8% years over years, with subscribers rising to 86.3 million from 84.4 million a quarter ago. LinkedIn turnover increased 9%with strength seen in all its business lines. Dynamics 365 turnover increased 18% years over years, driven by growth across all workloads. Intelligent Cloud was a miss on both revenue and operating income, and the gross margins compressed (as expected) due to scaling of its AI infrastructure. We would have preferred to see stronger results from its cloud computing business Azure. Total revenue rose 31% years over years and beat the factset consensus estimate of 30.2%. However, the constant currency (CC) result gives a clearer image because it stripes the effects of changed exchange rates. On CC -Basis, revenue also increased 31% in accordance with management’s 31% management guidance to 32%, but it was under the FactSet consensus estimate of 32%. Looking at more closely, while the AI part of the company remains capacity-limited, management pointed out growth in its non-ai services as slightly lower than expected because of what they described as “go to market execution challenges” with customers reached through “scale proposals,” meaning partners and other indirect sales methods. The more personal computer segment released better than expected results, with revenue flat and a nice boost in operating income and gross margin thanks to increased sales in companies with higher margins and improvements in games, search and news advertising. During the quarter, Microsoft saw growth in its Windows OEM, Xbox content and services and search and news advertising companies, while devices, games and Xbox hardware revenue declined. The Guidance Management’s revenue view for its fiscal 2025 third quarter was lower than what analysts expected across all key lines. The biggest miss came from the intelligent Sky Segment, where the management led the Azure income growth of 31% to 32%. For us, this is this stabilization and not the reacceleration management that was previously said would begin in the second half of the financial year. Of course, some of the misses could be explained by an increase in headwind prerequisites from the strengthening US dollar. The company now sees, for example, to reduce total revenue growth by 2 percentage points. That’s an extra $ 1 billion against prior expectations. But if we summarize the midpoint of each guide and add back to $ 1 billion, it was still a revenue married against the factset consensus estimate. For a stock trading of 32 times forward earnings per year. Stock estimates, you need to hit your numbers. The strong dollar helps with the expenditure side and reduces the cost of goods sold (COGS) and operating costs growth by 2 percentage points and 1 percentage point respectively. It also expects that the 2025 operating year’s financial margins will be a little up year through the year, and that’s a little better than expected. Microsoft expects quarterly consumption in the third and fourth quarter will remain at the same levels as the second quarter. For the 2026 fiscal year, Microsoft expects the CAPEX VACKATER to be lower than the 2025 financial year, with the expenses of switching from long-term assets such as infrastructure, power and countries back to short-term assets such as CPUs and GPUs, which the company says is more correlated with revenue growth. (Jim Cramer’s Charitable Trust is a long msft. See here for a complete list of the shares.) As a subscriber to CNBC Investing Club with Jim Cramer you will receive a trading alert before Jim trades. Jim waits 45 minutes after sending a trading alarm before buying or selling a stock in his charitable portfolio of trust. If Jim has talked about a share on CNBC TV, he waits 72 hours after issuing the trading alarm before performing the trade. The above information about investment club is subject to our terms and conditions and privacy policy together with our disclaimer. There is no obligation to trust or duty or be created by virtue of your receipt of information provided in connection with the investment club. No specific result or surplus is guaranteed.

Satya Nadella, CEO of Microsoft, talks about CNBCS Squawk Box outside the World Economic Forum in Davos, Switzerland on January 22, 2025.

Gerry Miller | CNBC

Microsoft Could not shake the bear dissertation with its accounting departure from 2025 on Wednesday in the 2nd quarter, causing the share to fall more than 5% in continuation of trade. Despite beating top line and bottom line estimates, the software giant’s disappointing cloud revenue and soft guidance that are renewed generates that AI expenses do not generate sufficient returns.