Microsoft Q1 2025 means the company’s fiscal first quarter ended September 30, 2024—not January through March 2025. Released October 30, 2024, the quarter produced GAAP revenue of $65.585 billion, up 16% year over year. Microsoft Cloud revenue rose 22% to $38.9 billion, while Azure and other cloud services grew 33%. The trade-off was lower cloud profitability as Microsoft invested heavily in AI infrastructure.
Microsoft Q1 2025 at a glance
| Measure | Fiscal Q1 2025 | Year-over-year change |
|---|---|---|
| Quarter ended | September 30, 2024 | — |
| Earnings release | October 30, 2024 | — |
| Revenue | $65.585 billion | 16% |
| Operating income | $30.552 billion | 14% |
| Net income | $24.667 billion | 11% |
| Diluted EPS | $3.30 | 10% |
| Microsoft Cloud revenue | $38.9 billion | 22% |
| Cash returned to shareholders | $9.0 billion | Dividends and repurchases |
These are GAAP figures from Microsoft’s FY25 Q1 earnings release. Prior-year revenue was $56.517 billion, operating income was $26.895 billion, net income was $22.291 billion and diluted EPS was $2.99.
Why “Q1 2025” refers to July–September 2024
Microsoft’s fiscal year ends June 30. Fiscal Q1 2025 therefore covered July 1 through September 30, 2024. Calendar Q1 2025, the January–March period, was Microsoft’s fiscal Q3 2025. This fiscal-calendar distinction is essential when comparing Microsoft with companies that use calendar quarters.
Segment performance
| Operating segment | Revenue | Year-over-year growth | Operating income |
|---|---|---|---|
| Productivity and Business Processes | $28.317 billion | 12% | $16.516 billion |
| Intelligent Cloud | $24.092 billion | 20% | $10.503 billion |
| More Personal Computing | $13.176 billion | 17% | $3.533 billion |
Segment figures are reported in Microsoft’s financial statements.
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Productivity and Business Processes
- Microsoft 365 Commercial products and cloud services increased 13%; its commercial cloud component increased 15%.
- Paid Microsoft 365 Commercial seats rose 8%, with growth from small and medium-sized businesses and frontline-worker offerings.
- Microsoft said E5 and Microsoft 365 Copilot supported average revenue per user. It did not disclose standalone Copilot revenue.
- Microsoft 365 Consumer products and cloud services grew 5%, and consumer cloud grew 6%.
- LinkedIn revenue increased 10%.
- Dynamics products and cloud services grew 14%, while Dynamics 365 rose 18%.
Intelligent Cloud
Intelligent Cloud was the fastest-growing operating segment by revenue, reflecting Azure and other cloud services, server products and related services. Management said Azure consumption growth was stable entering fiscal Q2.
More Personal Computing
More Personal Computing benefited substantially from the Activision Blizzard acquisition, particularly in Xbox content and services. That means its 17% segment growth was not entirely organic.
Microsoft Cloud, Azure and the AI trade-off
Microsoft Cloud is a company-defined aggregate, not another name for Azure. It includes Microsoft 365 Commercial cloud, Azure and other cloud services, commercial LinkedIn and Dynamics 365, according to Microsoft’s Form 10-Q.
What Microsoft disclosed about Azure
- “Azure and other cloud services” revenue grew 33% year over year.
- AI services contributed 12 percentage points to that growth.
- Microsoft does not disclose a standalone Azure revenue dollar figure in this release.
- Server products and cloud services revenue increased 23%.
Microsoft said capacity constraints limited the contribution from AI services. Management expected additional infrastructure to allow Azure growth to accelerate in the second half of fiscal 2025 and said it expected to add more sequential Azure dollars in Q2 than in any previous quarter.
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AI increased demand but reduced margins
Microsoft Cloud gross margin was approximately 71%, down two percentage points from a year earlier. Company gross margin was approximately 69%, also down two points. On the earnings call, Microsoft attributed the cloud pressure primarily to scaling AI infrastructure; Activision purchase accounting and integration costs also affected companywide margins.
Management said its AI business was on track to exceed a $10 billion annual revenue run rate in fiscal Q2. That is a forward-looking annualized projection, not $10 billion of revenue reported in Q1.
Gaming and Activision Blizzard
Xbox content and services revenue jumped 61%. Microsoft said Activision Blizzard contributed 53 percentage points of that growth, including the effect of Activision content moving from third-party to first-party content in the accounting presentation.
- Activision contributed approximately 3 percentage points to total-company revenue growth.
- It reduced operating-income growth by approximately 2 points.
- It reduced EPS by approximately $0.05.
The acquisition therefore boosted reported sales while creating purchase-accounting and integration costs that weighed on earnings.
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Windows, search and devices
- Windows OEM and Devices revenue increased 2%.
- Search and news advertising revenue excluding traffic acquisition costs increased 18%.
- Microsoft expected Devices declines to offset Windows OEM growth in fiscal Q2.
The search figure is specifically the ex-TAC measure; it should not be confused with the comparable figure including traffic acquisition costs.
Commercial bookings and contracted work
Commercial bookings increased 30% on a reported basis and 23% in constant currency. Commercial remaining performance obligation increased 22% reported and 21% in constant currency, reaching $259 billion in total. Microsoft said approximately 40% was expected to be recognized as revenue over the following 12 months and that annuity sales represented about 98% of the mix.
Bookings and remaining performance obligations indicate contracted demand, but they are not immediate revenue or guaranteed near-term profit. Recognition depends on contract timing, consumption and accounting rules.
Microsoft’s fiscal Q2 2025 outlook
The following was management guidance issued October 30, 2024, not a report of results:
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| Measure | Fiscal Q2 outlook |
|---|---|
| Productivity and Business Processes revenue | $28.7–$29.0 billion; 10%–11% constant-currency growth |
| Microsoft 365 Commercial cloud | Approximately 14% constant-currency growth |
| Intelligent Cloud revenue | $25.55–$25.85 billion; 18%–20% constant-currency growth |
| Azure growth | 31%–32% constant currency |
| More Personal Computing revenue | $13.85–$14.25 billion |
| Microsoft Cloud gross margin | Approximately 70% |
| Cost of revenue | 11%–13% constant-currency growth |
| Operating expenses | Approximately 7% constant-currency growth |
| Other income and expense | Approximately negative $1.5 billion, mainly expected OpenAI equity-method losses |
| Effective tax rate | Approximately 19% |
Constant-currency percentages are a non-GAAP way of removing foreign-exchange effects. They are not the same as reported growth rates.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What investors were watching
AI monetization versus infrastructure cost
Azure growth and AI’s 12-point contribution showed strong demand, but the margin decline demonstrated that Microsoft was still spending heavily to supply that demand. The quarter did not provide a standalone AI income statement.
Capacity as a growth constraint
Management’s comments suggested infrastructure availability, rather than a lack of customer interest, was limiting some AI-services revenue. The timing of new capacity remained important to the second-half growth outlook.
Recurring commercial demand
Bookings, annuity-heavy sales and the $259 billion remaining performance obligation supported visibility into future revenue, although those commitments will be recognized over different periods.
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- Brilliant Display – Stunning 13.8" PixelSense touchscreen[1], with brilliant LCD display[2], unleashes luminous whites, deeper blacks and colors so richly saturated bringing vivid life into every frame – perfect for work, school, streaming and creative tasks.
- Power that lasts all day – With 20 hours of battery life[3], the new Surface Laptop powers through your entire day, so you can create, work and stream from morning to night without reaching for a charger.
- Work at the speed of your ideas – Built with the latest Qualcomm Snapdragon X2 Elite (12 Core) processors, Surface Laptop delivers fast, AI‑accelerated performance—making it the most powerful Surface laptop for everything from multitasking to demanding workloads.
- The ports you need – Charge on-the-go, transfer data fast, or create the ultimate desktop set up with two USB-C / USB4[4] ports.
- Built-in AI Companion – Work smarter, create freely, and communicate with confidence—Copilot[5] on Windows 11 is always there to help.
Acquisition effects
Activision made gaming growth look much stronger, while purchase accounting and integration costs reduced operating-income growth and EPS. Investors need both sides of that comparison.
Revenue-recognition timing
Microsoft noted in-period recognition effects across Microsoft 365 Commercial, Azure and on-premises server businesses. Quarterly comparisons can therefore reflect timing as well as underlying consumption.
The Bottom Line
Microsoft’s fiscal Q1 2025 was a strong cloud-and-AI growth quarter: revenue rose 16%, Microsoft Cloud rose 22% and Azure and other cloud services rose 33%. The key constraint was economic, not demand-related—AI infrastructure investment lowered Microsoft Cloud margins and required continued capital spending.
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