Microsoft's Azure Cloud Growth Disappoints, But AI Drives Share Gains

Microsoft shares fell as much as 7% in extended trading on Tuesday as investors looked past better-than-expected earnings and revenue and focused instead on disappointing cloud results. But executives provided a dose of optimism when they predicted a cloud growth speed-up in the first half of 2025.

Here's how the company did, compared with the LSEG consensus:

Revenue: $65.24 billion expected versus $65.24 billion reported (15% year-over-year growth)## Net income: $22.04 billion reported versus $20.08 billion expected## EPS: $2.94 expected versus $2.94 reported

Cloud Performance

The company's top segment, Intelligent Cloud, generated $28.52 billion in revenue. It includes the Azure public cloud, Windows Server, Nuance and GitHub. The total was up about 19% and below the $28.68 billion consensus among analysts surveyed by StreetAccount. GitHub's revenue is now at an annual run rate exceeding $2 billion, Microsoft CEO Satya Nadella said on a conference call with analysts.

Revenue from Azure and other cloud services grew 29% during the quarter. Analysts polled by CNBC and StreetAccount had expected 31% growth. Microsoft's Azure number hadn't fallen short of consensus since 2022. The tech giant doesn't disclose revenue from the category in dollars.

AI Growth

Of the 29% growth for Azure and other cloud services, 8 percentage points came from AI services, Microsoft said.

"Our share gains accelerated this year driven by AI," Nadella said. But demand for Azure AI services remained higher than available capacity, said Amy Hood, Microsoft's finance chief. The company pointed to that trend in April. She said Azure growth in June was slightly lower than expected across some parts of Europe.

Outlook

Microsoft sees fiscal first-quarter Azure revenue growth between 28% and 29% at constant currency in the fiscal second quarter, with faster growth in the second half of the fiscal year, Hood said. Analysts polled by StreetAccount were looking for fiscal second-quarter revenue growth of 30.6% for Azure.

Other Business Segments

The Productivity and Business Processes unit that includes Office software and LinkedIn produced $20.32 billion in revenue. That's up 11% and more than the $20.13 billion StreetAccount consensus.

Microsoft's More Personal Computing unit, with the Windows operating system, gaming, devices and search advertising, contributed $15.90 billion in revenue. That outcome is up 14% and higher than the StreetAccount consensus of $15.49 billion.