Microsoft’s AI Business Thrives While Xbox Struggles

Microsoft’s cloud and AI divisions are performing strongly, significantly influencing the company’s overall growth. In its Q2 2025 earnings report, Microsoft reported a revenue of $69.6 billion, marking a 12% year-over-year increase. Net income reached $24.1 billion, up 10% compared to the same period last year.

The AI segment made notable strides, with CEO Satya Nadella highlighting an annual revenue run rate exceeding $13 billion, representing a 175% year-over-year surge. Azure and other cloud services experienced a 31% growth compared to last year, although slightly lower than the 33% rise seen in the previous quarter.

On the gaming front, revenues fell by 7%, with Xbox hardware sales seeing a sharp 29% decline. The company's strategic shift toward game content and services, moving away from a hardware-centric approach, seems to be taking shape. Xbox content and services revenue saw a 2% increase, driven by the success of Game Pass, which set a new quarterly revenue record. Xbox Cloud Gaming also hit a milestone with 140 million hours streamed. Nadella noted that the new Indiana Jones and the Great Circle title attracted over 4 million players.

In the Windows segment, OEM and device revenue grew by 4% year-over-year. However, CFO Amy Hood projected a slight decline in this segment for Q3 2025. Gaming revenue is also expected to see modest growth, while Xbox hardware sales are anticipated to continue declining.

Nadella emphasized the company’s positive relationship with OpenAI while acknowledging DeepSeek's recent innovations.

Source: theverge.com