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Microsoft Reports Strong Growth Driven by AI, While Xbox Struggles with Hardware Sales

Microsoft

Microsoft has released its financial results for the second quarter of 2025, showing strong overall growth. The company reported $69.6 billion in revenue, marking a 12% increase compared to the same period last year. Net profit also saw a 10% rise, reaching $24.1 billion. This growth was largely driven by cloud services, particularly Azure, and advancements in artificial intelligence.

CEO Satya Nadella highlighted that AI revenue surpassed an annualized rate of $13 billion, reflecting an impressive 175% growth. The Intelligent Cloud segment, which includes Azure, recorded a 31% year-over-year increase, though it showed a slight slowdown compared to the previous quarter.

Xbox Faces Challenges Despite Service Growth

xbox

Despite these strong performances, Microsoft’s gaming division faced some challenges. Xbox revenue declined by 7%, with hardware sales experiencing a sharp 29% drop. This downturn aligns with Microsoft’s shift in focus from hardware to services, as seen in the “This is an Xbox” campaign and the expansion of Xbox Game Studios titles to multiple platforms. Interestingly, this strategy helped Microsoft become the top game publisher in December, with 64% of its revenue coming from PlayStation.

On a positive note, Xbox Game Pass and cloud gaming services showed growth. Revenue from Xbox content and services increased by 2%, largely due to a record-breaking quarter for Game Pass and an increase in PC subscribers. Additionally, Xbox Cloud Gaming reported 140 million streaming hours.

Looking ahead to the third quarter of 2025, Microsoft expects single-digit growth in gaming revenue, mainly driven by content and services, while hardware revenue is likely to continue declining. During the earnings call, Nadella also expressed satisfaction with Microsoft’s renewed partnership with OpenAI and acknowledged the impressive innovations of DeepSeek in AI development.

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