Microsoft couldn’t shake the bear thesis with its fiscal 2025 second-quarter numbers Wednesday, causing the stock to fall more than 5% in extending trading. Despite beating top-line and bottom-line estimates, the software giant’s disappointing cloud revenues and soft guidance renewed concerns its AI spending is not generating sufficient returns. Revenue increased 12% year over year to $69.6 billion in its fiscal 2025 second quarter, beating the Street consensus estimate of $68.78 billion, according to data from LSEG. Earnings per share increased 10% from last year to $3.23, ahead of EPS estimates of $3.11, LSEG data showed. Microsoft Why we own it : Microsoft is a core backbone of global productivity thanks to its Office 365 suite and hybrid cloud platform Azure. The company is also proving itself to be a key provider of artificial intelligence tools due, in part, to its large investment in OpenAI, the startup behind ChatGPT. We also like what it’s doing in the video gaming industry as looks to grow recurring revenue streams. Competitors : Amazon , Alphabet and Salesforce Weight in portfolio : 2.75% Most recent buy : Aug. 5, 2024 Initiated : Dec. 4, 2017 Bottom line Overall it was a solid quarter. The company beat analysts’ estimates on several line items and posted better-than-expected operating margins. However, Microsoft did not meet the bar where it counts most: Azure cloud revenue growth. There were some notable achievements in the quarter. For its AI business, the annual revenue run rate exceeded $13 billion and contributed 13 percentage points to Azure revenue growth, up from 12 points last quarter. But the results still failed to meet the mark due to non-AI cloud-related execution issues, which is something extremely rare for this high-quality company. Plus, the bullish case around an Azure revenue growth reacceleration in the second half of the year stumbled when management provided the same guidance it gave last quarter. As for what Chinese startup DeepSeek’s low-cost AI model means for Microsoft, CEO Satya Nadella sounded quite bullish on the opportunities, commenting that
