Microsoft's (MSFT) Q2 FY2025 performance demonstrated robust growth across key segments, with total revenue increasing by 12% year-over-year to $69.6 billion. This growth was primarily driven by the Intelligent Cloud and Productivity and Business Processes segments, while More Personal Computing remained relatively flat. Gross margin also improved by 13% to $47.8 billion, reflecting strong operational efficiency and a favorable sales mix shift to higher-margin businesses.

The Intelligent Cloud segment saw a 19% revenue increase to $25.5 billion, driven by strong demand for Azure and other cloud services, which grew by 32%, including a significant contribution from AI services, which expanded by 157%. Operating income for this segment rose by 14% to $10.9 billion, despite a slight decline in gross margin percentage due to scaling AI infrastructure.

The Productivity and Business Processes segment achieved a 14% revenue growth to $29.4 billion, fueled by a 15% increase in Microsoft 365 Commercial cloud revenue. LinkedIn revenue also grew by 9%, and Dynamics 365 revenue surged by 19%, reflecting strong adoption across workloads. Operating income for this segment increased by 16% to $16.9 billion.

The More Personal Computing segment remained stable with revenue of $14.7 billion, showing no significant year-over-year change. While Gaming revenue declined by 7%, driven by a 29% drop in Xbox hardware revenue, this was partially offset by a 2% growth in Xbox content and services revenue. Operating income for this segment rose significantly by 32% to $3.9 billion, supported by a favorable sales mix shift to higher-margin businesses.

Net income for the quarter was $24.1 billion, reflecting a 10% year-over-year increase, while diluted earnings per share (EPS) rose by 10% to $3.23. These results underscore Microsoft's ability to drive profitability alongside revenue growth.

Microsoft's cash flow from operations increased by $7.0 billion to $56.5 billion for the six months ended December 31, 2024, primarily due to higher cash receipts from customers. However, cash used in financing activities rose significantly to $27.8 billion, driven by debt repayments and share repurchases. Cash used in investing activities decreased to $29.3 billion, reflecting lower acquisition costs.

The company returned $9.7 billion to shareholders during the quarter through share repurchases and dividends. This includes a dividend of $0.83 per share, amounting to $6.2 billion, and share repurchases totaling $3.5 billion.

Microsoft's Microsoft Cloud revenue reached $40.9 billion for the quarter, a 21% year-over-year increase, driven by strong performance in Azure, Microsoft 365 Commercial cloud, and Dynamics 365. The gross margin percentage for Microsoft Cloud decreased to 70%, primarily due to investments in scaling AI infrastructure.

The company's total assets increased to $533.9 billion, up from $512.2 billion as of June 30, 2024. This growth was driven by increases in operating lease right-of-use assets and other long-term assets. Total liabilities decreased to $231.2 billion, reflecting reductions in short-term debt and unearned revenue.

Microsoft's effective tax rate remained stable at 18%, benefiting from tax law changes and a favorable mix of earnings between U.S. and foreign jurisdictions. The company continues to monitor the impact of global tax reforms, including the OECD's Pillar Two legislation.