Story Stocks^®

Microsoft (MSFT +5%) wrapped up FY25 with an impressive Q4 (Jun) report last night. The software giant posted it largest EPS beat in the last seven quarters. Revenue rose a robust 18.1% yr/yr to $76.44 bln, which was much better than expected and was a milestone by topping $75 bln for the first time ever. It was also its highest growth since 2QFY22. All three segments performed better than expected, but Azure was the star of the show. MSFT also guided Q1 (Sep) revs above expectations.

• Let's start with Azure, which grew +39% CC (constant currency), well above prior guidance of +34-35% CC. Azure has now posted big upside in back-to-back quarters after coming in at the low end of guidance in Q2. Azure growth was driven by accelerated growth in its core infrastructure business, primarily from its largest customers. Revenue from Azure AI services was generally in-line. And while MSFT brought additional data center capacity online in Q4, demand remains higher than supply.
• Not only did Azure outperform in Q4, but Azure's Q1 (Sep) guidance of +37% CC was also impressive. Even as it continues bringing more data center capacity online, MSFT expects to remain capacity-constrained through the first half of its fiscal year. MSFT continues to lead the AI infrastructure wave and took share every quarter this fiscal year. In its on-premises server business, MSFT expects revenue to decline in the low to mid-single digits as customers shift to the cloud.
• Its two other segments, Productivity and Business Processes and More Personal Computing also came in ahead of prior guidance. PBP was driven by M365 Commercial products and cloud services and M365 Consumer products and cloud services. MSFT noted LinkedIn is home to 1.2 bln members with four consecutive years of double-digit member growth. MSFT continues to bring AI to every part of the LinkedIn experience, introducing agents across hiring as well as sales.
• Its MPC segment also exceeded expectations, primarily due to Windows OEM as well as Xbox content and services. Search was a standout with revenue ex-TAC up 20% CC. In Gaming, revenue increased 10% CC with Xbox content and services revenue up 12% CC. Speaking of gaming, MSFT noted it has 500 mln monthly active users across platforms and devices. It's now the top publisher on both Xbox and PlayStation with successful launches of Forza Horizon 5 and Oblivion Remastered.
• In terms of the guidance, MSFT expects to deliver another year of double-digit revenue growth in FY26. MSFT also reminded investors that cap-ex will moderate in FY26 as compared to FY25 with a greater mix of short-lived assets. Due to the timing of delivery of additional capacity, cap-ex is expected to be higher in 1H and lower in 2H. In Q1, management expects cap-ex to be over $30 bln, driven by strong demand signals we see.

Overall, this was a great quarter for MSFT. The company is huge and yet it still is able to accelerate revenue growth at a good clip, which is quite remarkable. The Azure result and guidance were the real standout metrics. As a quick side note, MSFT always reports Azure growth, but not the dollar amount. However, it broke with that pattern and we got a little glimpse. It said Azure surpassed $75 bln in FY25 revs, up 34%. That is still less than Amazon's AWS which has posted $112 bln in the last 12 months. However, AWS is growing in the high-teens while Azure is growing at 34%. Nevertheless, the Azure numbers are great news for Amazon (AMZN) and its AWS segment, which reports tonight.