Microsoft reported its second-quarter earnings for fiscal year 2025 on Wednesday, beating market expectations even as questions over multibillion-dollar spending on artificial intelligence continue to mount, spurred by DeepSeek’s shock to the US stock market just days ago.
The tech giant reported earnings per share of $3.23, an increase of 10% on a year earlier, and revenue of $69.6bn, an increase of 12%. Wall Street had expected $3.11 a share from revenue of $68.9bn.
Shares in the company, worth a total of $3.28tn, are up roughly 8% over the past 12 months as it has poured capital investment into AI and plans $80bn on new AI spending this year. Meta has made similar commitments; US tech giants are rushing to gain an edge over their competitors in the AI race.
“We are innovating across our tech stack and helping customers unlock the full ROI of AI to capture the massive opportunity ahead,” said Satya Nadella, chairman and chief executive officer of Microsoft. “Already, our AI business has surpassed an annual revenue run rate of $13bn, up 175% year-over-year.”
Amy Hood, executive vice-president and chief financial officer at Microsoft, said revenue from its data cloud business was $40.9bn, up 21% year-over-year. “We remain committed to balancing operational discipline with continued investments in our cloud and AI infrastructure,” Hood said.
The company’s earnings report comes in the shadow of a sell-off in AI-exposed companies on Monday when a Chinese company, DeepSeek, said its AI model had achieved similar results to those of US companies at a fraction of the cost. Chipmaker Nvidia lost some $600bn in market capitalization, though it recovered part of that value in the ensuing days of trading.
The implications of DeepSeek’s apparent AI cost breakthrough – it claims to have spent mere millions training its model – raises questions over the past year’s $5tn AI-related run-up in the overall market value of the tech giants known as the “magnificent seven” on Wall Street: Meta, Microsoft, Alphabet, Amazon, Apple, Nvidia and Tesla. The gains accounted for much of the S&P 500’s roughly 70% advance over that period, which has slowed as concerns that returns on AI-capital spending, estimated at more than $200bn over the past year with more scheduled for this year, are still elusive.
“2025 is likely to be the most pivotal year on record for the AI revolution on the development side but also on the financial side, as investors expect to get the returns for the trillions of dollars invested over the past two years,” said Thomas Monteiro, senior analyst at Investing.com, after the results were released. He called Microsoft “the undisputed AI leader on the software side” and “a stable bet” for investors looking to cash in on AI.
Microsoft and AI partner OpenAI are investigating whether data output from OpenAI’s technology was obtained in an unauthorized manner by a group linked to DeepSeek, according to Bloomberg. David Sacks, the White House’s AI and crypto czar, told Fox News that it was “possible” that DeepSeek had stolen intellectual property from the United States.
In an earnings call after the company results were released, Nadella said DeepSeek had shown “real innovations” and what was taking place was no different in optimization and improvements to AI than in regular computing.
“For a hyperscaler like us, this is all good news,” he told investors.
The Microsoft CEO was also asked about the Stargate Project, a joint venture between OpenAI, Oracle and SoftBank that did not include Microsoft, OpenAI’s top investor, announced by Donald Trump last week. He pushed back on a suggestion that Microsoft would now be taking a backseat: “We remain very happy with the partnership with OpenAI.”
The day before, OpenAI’s Sam Altman had posted a picture with Nadella, suggesting the alliance between his company and Microsoft was still strong. Altman wrote that the “next phase” of the partnership was “gonna be much better than anyone is ready for”.
