Photo Credit: Tawanda Razika from PixabayLast week, Microsoft (Nasdaq: MSFT) announced its second quarter results that surpassed market expectations. However, its stock slumped following a weak outlook and the buzz around DeepSeek.
Microsoft’s Financials
Microsoft’s second quarter revenues grew 12% to $69.63 billion, beating analyst estimates of $68.78 billion. EPS was $3.23, exceeding analyst estimates of $3.11.Microsoft’s Intelligent Cloud segment revenues grew 18% to $25.5 billion, slightly less than the estimate of $25.83 billion. Azure revenues grew 31%, down from the 33% growth in the previous quarter. Revenues from the Productivity and Business Processes unit, including Office productivity software, LinkedIn, and Dynamics, grew 14% to $29.4 billion, beating the Street’s forecast of $28.89 billion. Revenue from its More Personal Computing segment was flat at $14.65 billion, beating the analyst estimate of $14.29 billion. For the third quarter, Microsoft expects 10% growth or revenues of $67.7 -$68.7 billion while analysts expect $69.78 billion.
Microsoft’s AI Business
Although Microsoft’s Q2 cloud revenue was slightly less than expectations, CEO Satya Nadella noted that the company’s AI revenue run rate hit $13 billion in the quarter, well above their forecast of $10 billion in October.AI-powered analytics platform Microsoft Fabric already has over 19,000 paid customers and is the fastest-growing analytics product in Microsoft’s history. Power BI is also deeply integrated with Fabric with over 30 million MAUs, up 40%. After only two months, Azure AI Foundry has over 200,000 MAUs. Microsoft has over 30 models from partners like Bayer, PAYG AI, Rockwell Automation, Siemens to address industry-specific use cases. GitHub Copilot is increasingly the tool of choice for both digital natives like Spotify as well as world’s largest enterprises like HP, HSBC, and KPMG. In the first week post its launch, GitHub Copilot had over 1 million sign-ups. GitHub now is home to 150 million developers, up 50% over the past two years. Its Phi family of small language models (SLMs), launched early last year, has now been downloaded over 20 million times.
The DeepSeek Buzz
Tech stocks slumped last week after news that Chinese AI startup DeepSeek has developed a model similar to ChatGPT for only $5.6 million. On the other hand, Microsoft had announced early this year that it is on track to invest $80 billion in fiscal 2025 on AI infrastructure. During the earnings call, CEO Satya Nadella said that DeepSeek had some real innovations and that it is good to have efficiency gains and lower prices in AI development to drive its consumption. DeepSeek’s latest AI model has been made available on Azure computing platform last week. I think with its support of both OpenAI’s leading models and the best selection of open-source models and SLMs, Microsoft seems to be well-positioned. I have had several conversations with AI investors where I have discussed ideas and opportunities for Vertical AI. With DeepSeek, the opportunities have exploded for entrepreneurs looking to create cost-effective vertical AI solutions. The company’s stock is trading at $415.04 with a market capitalization of $3.09 trillion. It hit a 52-week high of $468.35 in July last year. It hit a 52-week low of $385.58 in April last year.More By This Author:AI Unicorns: Rasa Races To Make It In The Conversational AI Market
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