EPS of $3.23 increased by 10.2% from previous year
Gross margin of 68.7%
Net income of 24.11B
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Microsoft Corporation (MSF.F) QQ2 2025 Results — Durable Profitability, Cloud Momentum, and Balanced Capital Allocation
Executive Summary
Microsoft delivered a solid QQ2 2025 result with durable profitability and strong cash generation. Revenue reached $69.632 billion, up 12.27% year over year and 6.17% quarter over quarter, supported by continued demand for cloud services, productivity software, and AI-enabled offerings. Gross margin remained robust at 68.69%, driving an operating margin of 45.46% and net margin of 34.62%, underscoring the company's cost discipline and scalable software model. Free cash flow was $6.49 billion for the quarter, supplemented by substantial operating cash flow of $22.29 billion, enabling aggressive capital allocation through dividends and share repurchases while maintaining a healthy balance sheet.
Microsoft’s balance sheet remains exceptionally strong. Total assets stood at $533.90 billion with total stockholders’ equity of $302.70 billion. Liquidity metrics are solid (current ratio 1.351, quick ratio 1.342), and the company carries a modest debt burden (debt to capitalization 17.1%, debt to equity 0.206). Cash and marketable investments totaled $71.55 billion, while net debt stood at $44.74 billion. The capital allocation framework features a combination of ongoing shareholder rewards (dividends and buybacks) and continued investment in high-return initiatives, notably cloud infrastructure and AI-enabled software solutions.
From a valuation perspective, Microsoft trades at premium multiples (P/E around 32.5x, P/S around 45x, EV/EBITDA not disclosed here but implied premium relative to broader software peers), reflecting its entrenched ecosystem, scalable cloud platform, and durable profitability. The QQ2 results reinforce a constructive long-term investment thesis centered on the Microsoft Cloud (Azure) and productivity software, with AI integrations likely to support continued demand and margin resilience over time.
Key Performance Indicators
Revenue
69.63B
QoQ: 6.17% | YoY:12.27%
Gross Profit
47.83B
68.69% margin
QoQ: 5.16% | YoY:12.82%
Operating Income
31.65B
QoQ: 3.60% | YoY:17.09%
Net Income
24.11B
QoQ: -2.27% | YoY:10.23%
EPS
3.24
QoQ: -2.41% | YoY:10.20%
Revenue Trend
Margin Analysis
Key Insights
Gross Margin: 68.69% (Stable with scale in software and cloud offerings).
Operating Margin: 45.46% indicating strong leverage on higher-margin software and services.
Net Margin: 34.62% reflecting tax rate and other income/expense alignment.
R&D Intensity: R&D spend was $7.92B, representing roughly 11.4% of revenue, supporting long-term product roadmaps in AI, cloud, and platform enhancements.
Net cash provided by operating activities: $22.29B.
Notes on profitability and efficiency:
- Gross Margin: 68.69% (Stable with scale in software and cloud offerings).
- Operating Margin: 45.46% indicating strong leverage on higher-margin software and services.
- Net Margin: 34.62% reflecting tax rate and other income/expense alignment.
- R&D Intensity: R&D spend was $7.92B, representing roughly 11.4% of revenue, supporting long-term product roadmaps in AI, cloud, and platform enhancements.
Cash flow and capital allocation:
- Net cash provided by operating activities: $22.29B.
- Free cash flow: $6.49B; Free cash flow per share (approx.): $0.87.
- Capex: $(15.80)B; Dividends paid: $(6.17)B; Common stock repurchased: $(4.99)B.
- Net cash used in financing activities: $(11.24)B.
- Cash, cash equivalents, and investments: $71.55B; Net debt: $(44.74)B (cash and investments exceed gross debt in aggregate, reflecting a strong liquidity position).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
69.63B
12.27%
6.17%
Gross Profit
47.83B
12.82%
5.16%
Operating Income
31.65B
17.09%
3.60%
Net Income
24.11B
10.23%
-2.27%
EPS
3.24
10.20%
-2.41%
Key Financial Ratios
currentRatio
1.35
grossProfitMargin
68.7%
operatingProfitMargin
45.5%
netProfitMargin
34.6%
returnOnAssets
4.52%
returnOnEquity
7.96%
debtEquityRatio
0.21
operatingCashFlowPerShare
$3
freeCashFlowPerShare
$0.87
dividendPayoutRatio
25.6%
priceToBookRatio
10.35
priceEarningsRatio
32.5
Net Income vs. Revenue
Expense Breakdown
Management Commentary
No earnings call transcript was provided in the data set. As a result, management quotes and thematic highlights could not be extracted. If you can supply the transcript text or a link, I will extract key quotes by theme (strategy, execution, market conditions) and annotate their significance for the investment case.
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Forward Guidance
Direct forward guidance or targets from management for QQ3 2025 or beyond are not included in the provided data. Nonetheless, several implicit drivers support a constructive outlook:
- AI and cloud adoption remain primary growth engines. Sustained demand for Azure and AI-enabled services should help uphold high gross margins and operating leverage as scale improves.
- Productivity and Business Processes (Office, Teams, Dynamics 365) continue to benefit from substitution away from on-premises solutions toward cloud-based subscriptions, contributing to revenue resilience.
- Balance sheet strength supports continued capital allocation via dividends and buybacks, which should remain a meaningful driver of shareholder value while remaining prudent on investments in AI, cybersecurity, and platform capabilities.
- Potential risks include ongoing regulatory scrutiny, macroeconomic softness in certain regions, competitive intensity in cloud infrastructure (public cloud growth dynamics), and currency headwinds given the USD reporting and international exposure. Investors should monitor Azure adoption rates, AI product integration milestones, and any changes in enterprise licensing deals that could alter mid-term growth trajectories.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MSF.F Focus
68.69%
45.50%
7.96%
32.50%
APC.F
47.10%
31.00%
37.10%
32.96%
ABEA.F
59.50%
32.40%
7.77%
18.94%
NVD.F
75.10%
62.10%
28.50%
42.88%
INL.F
27.50%
-10.00%
-2.98%
-8.49%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Long-term investment thesis remains favorable. Microsoft’s QQ2 2025 results demonstrate durable profitability, significant free cash flow, and a capital-allocation framework that prioritizes shareholder value while investing in AI, cloud, and productivity platforms. While valuation is premium, the combination of Azure-driven growth, a broad and sticky software ecosystem, and substantial balance-sheet capacity supports a credible multi-year upcycle. Investors should monitor Azure growth traction, AI feature adoption rates, competitive dynamics in cloud, and any shifts in enterprise software renewal cycles to assess the trajectory of margins and cash generation.
Key Investment Factors
Growth Potential
Sustained high-margin revenue growth driven by cloud (Azure) expansion, Office productivity subscriptions, LinkedIn monetization, and AI-enabled software ecosystems. The QQ2 2025 results show robust profitability with significant operating leverage and a favorable margin structure, suggesting a durable growth runway tied to enterprise software renewals and cloud migrations.
Profitability Risk
Key risks include regulatory developments affecting antitrust and data privacy, competitive pressure from hyperscalers and software incumbents, cybersecurity exposure, and macro headwinds that could affect enterprise IT budgets. Currency fluctuations could impact reported results given international revenue mix. Execution risk around AI feature adoption and pricing dynamics could influence mix and margins.
Financial Position
Balance sheet remains exceptionally strong with total assets at $533.9B and stockholders’ equity of $302.7B. Liquidity adequacy is demonstrated by current and quick ratios above 1, and a substantial cash/investment reserve ($71.55B) supports ongoing buybacks and dividends. Net debt of $44.74B indicates a debt-neutral to net-cash position when considering liquid assets, enabling aggressive but prudent capital allocation.
SWOT Analysis
Strengths
Dominant, diversified software and cloud platform with Azure as a core growth engine
High gross and operating margins driven by scalable subscription-based software business
Strong free cash flow and robust balance sheet enabling disciplined capital allocation
Wide ecosystem including Office, LinkedIn, GitHub, and enterprise AI solutions
Weaknesses
Reliance on large-scale enterprise demand cycles and licensing renewals
Exposure to regulatory and geopolitical risk in international markets
Significant capital expenditure in cloud infrastructure could compress near-term margins if demand softens
Opportunities
AI integration across productivity and cloud offerings to deepen lock-in and monetization
Expansion of cloud-based analytics, security, and compliance solutions to enterprise customers
Potential acceleration from Windows-related licensing and Surface devices in enterprise and education segments
Threats
Regulatory changes and antitrust scrutiny in multiple jurisdictions
Intense competition from other hyperscalers and software incumbents in cloud and AI
Macro uncertainty impacting enterprise IT budgets and multi-year licensing deals