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Microsoft (MSFT -1.3%) is trading modestly lower after reporting Q4 (Jun) results last night. The software giant broke its string of five consecutive double-digit EPS beats with a very modest EPS beat this time. Also, revenue rose 15.2% yr/yr to $64.73 bln, which was slightly above analyst expectations. The Q1 (Sep) revenue guidance was a bit light of expectations.

• Let's start with Azure, which performed well but was not the blowout result we saw in Q3 (Mar). Azure grew +30% CC (constant currency), which was at the low end of prior guidance of +30-31% CC due to some softness in a few European geographies on non-AI consumption. That followed Q3's huge upside at +31% CC vs +28% CC prior guidance. So the number was decent, just not what we saw in Q3. The Q1 (Sep) guidance was a bit of a letdown but not bad at +28-29% CC.
• What was impressive is that Microsoft said it now has over 60,000 Azure AI customers, up nearly 60% yr/yr and average spend per customer continues to grow. Also, commercial bookings were significantly ahead of expectations, +19% CC. This record commitment quarter was driven by growth in the number of $10+ mln and $100+ mln contracts for both Azure and Microsoft 365. Commercial RPO increased +20% and +21% CC to $269 bln.
• On the consumer side, the PC market was as expected with Windows OEM revenue increasing 4% yr/yr. LinkedIn was a standout with accelerated member growth and record engagement. LinkedIn Premium sign-ups increased 51% yr/yr. Also, Search, Advertising, and News revs ex-TAC rose a healthy 19% as Microsoft again took share across Bing and Edge. MSFT continues to apply generative AI to how people search and browse. MSFT now has 500+ mln monthly gaming active users across platforms and devices.
• By segment, revenue from Productivity and Business Processes was $20.3 bln, +12% CC, slightly ahead of expectations, driven by better-than-expected results across all business units. Intelligent Cloud segment revenue was $28.5 bln, increasing +20% CC, in line with expectations. More Personal Computing revenue was $15.9 bln, increasing +15% CC, which was above expectations, driven by Windows Commercial and Search.
• Looking ahead to FY25, we know MSFT does not guide beyond the next quarter. However, it did say it continues to expect FY25 double-digit revenue and operating income growth. On the cost side, MSFT plans to increase cap-ex spend in FY25 relative to FY24 to meet the growing demand for its AI and cloud products. MSFT plans to scale its infrastructure investments, including building/leasing data centers and buying servers to serve customers. This could impact margins in FY25.

Overall, this quarter was not as impressive as Q3, but still pretty good with all segments showing upside or being in-line. We would not be overly concerned about Azure. A lack of demand is not the problem, it sounds like it's more due to capacity constraints, particularly on AI at Azure. That was the case in Q4 and MSFT expects that to continue into 1HFY25. However, Azure will benefit in 2HFY25 as its step up in cap-ex spend comes online. Also, the stock has been pulling back in recent weeks, so maybe an imperfect quarter was priced in already.