Microsoft wraps FY25 on a high, riding AI and cloud wave

Microsoft Chairman and CEO Satya Nadella emphasised that the company is going through “a generational tech shift with AI” as it closed fiscal year 2025 on a high note. The firm clocked strong top- and bottom-line growth driven by AI-powered momentum across its cloud services.

Strong cloud and AI-driven results boosted investor sentiment, sending Microsoft shares to rise over 8% in after-hours trading and positioning the company to become the second ever to reach a $4-trillion market cap. If the rally holds, Microsoft will join chipmaker Nvidia, which crossed the $4-trillion mark earlier this month.

“It was a very strong close to what was a record fiscal year for us,” Nadella said during the Q4 earnings call. 

In Q4, the Windows maker’s revenue increased 18% YoY to $76.4 billion. Its net profit in the quarter surged to $27.2 billion, up 24% from the year-ago period. 

The company closed FY25 with $281.7 billion in revenue, up 15% YoY, and $101.8 billion in net profit, marking a 16% increase. Its financial year runs from July 1 to June 30, while other major tech companies often use the calendar year.

Microsoft Cloud revenue grew 23% YoY to exceed $168 billion in FY25. For the first time, the tech firm shared Azure revenue in dollars—$75 billion in sales for the fiscal year, up 34% YoY.

The firm spent $88.2 billion on capital expenditure (capex) in fiscal 2025, including $24.2 billion in Q4 alone. It plans to raise that to $30 billion in the current quarter (Q1 FY26). 

Like Meta, Google, and Amazon, Microsoft is also ramping up investment in servers and data centres to meet the surging computational demands of AI.

“We are building the most comprehensive suite of AI products and tech stack, at massive scale,” Nadella remarked, adding that the company continues to scale its owned data centre capacity faster than any other competitor.

Microsoft has opened data centres across six continents and now operates over 400 facilities in 70 regions. In the past 12 months, it added more than two gigawatts of compute capacity.

Quarterly growth across segments

The Redmond-headquartered firm broadly categorises its revenue under three segments: productivity and business processes, intelligent cloud, and more personal computing. 

Microsoft’s productivity and business processes clocked $33.1 billion in revenue in the fourth quarter, up 16% YoY. 

Revenue for intelligent cloud, which includes the Azure cloud computing platform, rose 26% to $29.9 billion in the June-ended quarter. The company’s server products and cloud services revenue increased 27% driven by Azure, and other cloud services revenue grew 39%.

More personal computing, which includes Windows OEM, Devices, Xbox content and services, search, and news advertising, was up 9% during Q4, clocking a revenue of $13.5 billion.

Revenue from Microsoft’s business and employment-oriented online service, LinkedIn, increased 9%, with growth across all lines of business. However, Talent Solutions continues to be impacted by weakness in the hiring market, noted Amy Hood, Executive Vice President and Chief Financial Officer of Microsoft.

Nadella highlighted that LinkedIn now has 1.2 billion members, marking four consecutive years of double-digit growth, with comments up over 30% and video uploads up more than 20% this year.

Gaming continues to be a key focus for Microsoft, with the company making significant advancements in this space in recent years, including the introduction of next-generation consoles and cloud gaming.

“When it comes to gaming, we have 500 million monthly active users across platforms and devices… We surpassed over 500 million hours of game play streamed via the cloud this year. And Game Pass (a subscription service offered by Microsoft that provides access to a library of games for a fee) annual revenue was nearly $5 billion for the first time,” Nadella said.

Outlook

In FY26, if exchange rates stay the same, Microsoft expects foreign exchange to add about 2 percentage points to revenue and cost of goods sold growth, and 1 point to operating expense growth.

“Building on the strong momentum we saw this past year, we expect to deliver another year of double-digit revenue and operating income growth in FY26,” Hood noted.

Microsoft said it will continue investing in future growth through both capital and operating expenses, though capital expenditure growth will be slow compared to FY25, with a larger share going toward short-lived assets.

In the first (ongoing) quarter, based on current exchange rates, Microsoft expects foreign exchange to boost total revenue growth by 2 percentage points.

“Our focus remains on investing in security, quality, and AI platform and product innovation that delivers value and opportunity to our customers. We are excited for FY26,” Hood remarked.