Microsoft: What to Expect From 1Q25

Consensus Forecast

Wall Street analysts are forecasting Microsoft to report revenue of approximately $68.5 billion for the fiscal third quarter of 2025, which would mark a year-over-year increase of about 14%. This expected growth is driven by strong performance across Microsoft's key segments - most notably its Intelligent Cloud division, which includes Azure, and the Productivity and Business Processes segment, home to Office 365, LinkedIn, and Dynamics. Earnings per share (EPS) are projected to come in around $3.20, reflecting not only top-line expansion but also effective cost control and operating leverage.

Behind these estimates lies continued optimism about Microsoft's ability to capitalize on enterprise digital transformation, growing demand for AI-enabled cloud services, and the successful monetization of its expanding software-as-a-service (SaaS) ecosystem. Microsoft has consistently reported improving gross and operating margins, and investors are expecting further margin expansion this quarter, supported by the scalability of cloud infrastructure, increasing subscription-based revenues, and higher average revenue per user (ARPU) across its product lines.

Another central component of investor expectations is double-digit growth in Azure, Microsoft's flagship cloud computing platform. Azure's performance serves as a barometer for Microsoft’s broader cloud strategy, and any results above or below expectations (consensus is for ~28-31% YoY growth in constant currency) could significantly move the stock. Given the intense interest in artificial intelligence, investors are also keen to see how AI-related workloads - such as machine learning and large language models - are contributing to Azure's growth trajectory.

Azure in the Spotlight

The most closely scrutinized component of Microsoft’s upcoming earnings will be the performance of Azure, the company’s cloud computing platform and a central pillar of its long-term growth strategy. Azure has consistently posted robust double-digit growth, and in the previous quarter it grew by 30% year-over-year, excluding currency fluctuations. This strong performance has been driven by a combination of traditional enterprise cloud migrations and a surge in demand for AI infrastructure.

For the current quarter, analysts expect Azure to deliver growth in the 28-30% range, which, if achieved, would confirm that Microsoft is sustaining momentum despite a more competitive and cost-sensitive environment. Any sign of sequential deceleration below 27% could raise concerns about macro-driven IT budget tightening, while growth north of 30% would likely be viewed as a bullish signal for Microsoft’s competitive positioning. Investors will pay close attention to the breakdown of Azure's growth, particularly in the areas of AI-related workloads. Microsoft has been aggressively positioning Azure as the leading cloud for generative AI use cases, in partnership with OpenAI. This includes providing compute infrastructure for training and inference, as well as integration with services like Azure OpenAI Service, which enables enterprise clients to embed large language models directly into their own applications.

The market is especially interested in whether this AI demand is translating into material revenue contributions - or if it remains a promising but still nascent part of the business. Moreover, management commentary on the composition of demand (new customers vs. expanded usage from existing clients), retention rates, and the pace of AI adoption across industries will offer valuable insights into Azure’s near- and medium-term trajectory.

Generative AI and Copilot Momentum

Microsoft has deeply embedded generative AI capabilities into its core product ecosystem, creating a significant new monetization layer across its software and cloud offerings. The centerpiece of this strategy is Microsoft Copilot, a suite of AI-powered assistants integrated into Microsoft 365 (Word, Excel, Outlook, Teams), GitHub Copilot for developers, Dynamics 365 Copilot for CRM and ERP workflows, and Azure AI services for building custom AI applications. These integrations are not just feature enhancements — they represent a strategic pivot toward AI-as-a-service within Microsoft’s enterprise stack.

Analysts are particularly focused on the adoption rate of Copilot within large corporate accounts, where it is often bundled into enterprise licensing agreements at a premium. In Microsoft 365, for example, Copilot is priced at $30 per user per month — a substantial uplift to standard productivity suite pricing. The degree to which enterprises are willing to pay for these AI enhancements will be a key determinant of Microsoft’s ability to increase ARPU (Average Revenue Per User) and expand margins.

There is also strong interest in usage metrics and renewal rates — i.e., how many clients are not just trying Copilot, but making it part of their workflow at scale. High engagement, especially in GitHub Copilot (which already has over 1.5 million paying users), is viewed as a signal that Microsoft's AI integration is sticky and delivering productivity gains. Positive commentary on customer satisfaction, productivity ROI, and long-term retention could help build the narrative of a durable AI-driven revenue stream.

Furthermore, analysts want to understand how these AI tools are contributing to cross-sell and upsell opportunities across the Microsoft ecosystem. For instance, Copilot in Dynamics 365 can drive deeper integration of Azure-based AI and analytics, creating additional cloud consumption. If Microsoft can demonstrate that AI integration is not only increasing standalone product revenue but also leading to broader Azure usage, that would strengthen the long-term investment thesis around its platform strategy.

Other segments

This division, which includes Office, LinkedIn, and Dynamics 365, is expected to show steady growth. Analysts estimate mid-to-high single-digit revenue expansion. Investors will look for signals of LinkedIn monetization trends, especially in advertising and premium subscriptions, as well as enterprise software adoption via Dynamics.

This segment, which includes Azure, Windows Server, and SQL Server, is expected to contribute the largest share of revenue—possibly $28–30 billion. Continued growth here will depend on cloud infrastructure, AI services, and hybrid offerings. Investors are also watching CapEx guidance closely to understand how much Microsoft is investing in AI data centers and chips.

Microsoft’s legacy PC business, including Windows OEM and Surface devices, has been under pressure amid weak global PC sales. However, stabilization is expected this quarter, with modest sequential improvement. The Xbox business and gaming segment, especially with the Activision Blizzard acquisition now integrated, could also provide a revenue boost.