Why Microsoft shares could decline despite a record-breaking earnings report

Microsoft’s revenue has reached an all-time high, and its share price has set a new historical peak. The current market situation may present an opportune moment for investors to lock in profits before a potential correction begins.

Microsoft Corporation (NASDAQ: MSFT) exceeded expectations in Q4 of the 2025 financial year, reporting revenue of 76.4 billion USD (+18% year-on-year) and earnings per share of 3.65 USD. Azure’s growth accelerated to +39%, while Microsoft Cloud revenue reached 46.7 billion USD (+27%).

Management announced record capital investments of approximately 30 billion USD for the current quarter to expand AI and cloud infrastructure capacity, underscoring future potential while also highlighting significant costs and infrastructure constraints.

Following the earnings release, the company’s shares opened with a sharp upward gap – rising as much as 8% – setting new all-time highs and briefly pushing Microsoft’s market capitalisation to approximately 4 trillion USD.

During the main trading session, however, the market began to lock in profits. Amid the initial euphoria, some investors chose to realise gains after the sharp post-report rally, while broader weakness in the technology sector – driven by overstretched valuations and caution following Federal Reserve rate signals – added to the selling pressure. As a result, Microsoft’s share price retreated from its peak levels, closing well below the intraday highs and indicating that the initial reaction had been overly optimistic.

Overall, the market recognised a robust quarter for Microsoft, yet some investors opted to take profits at record highs.

This article examines Microsoft Corporation, outlining its business operations, providing a fundamental analysis of Microsoft’s financial results, and offering a technical analysis of MSFT shares, forming the basis for a stock forecast for Microsoft in 2025.

About Microsoft Corporation

Microsoft Corporation is one of the world’s largest technology companies, specialising in software development, computer hardware, cloud services, and other technologies. The company was founded on 4 April 1975 by Bill Gates and Paul Allen. Microsoft is renowned for its flagship products, including the Windows operating system, the Microsoft Office suite, the Bing search engine, the Azure cloud platform, Xbox gaming consoles, and various other innovations. It is actively expanding its initiatives in artificial intelligence, corporate solutions, and software development. Microsoft’s initial public offering (IPO) occurred on 13 March 1986, when its shares were listed on the NASDAQ stock exchange under the MSFT ticker. Today, Microsoft holds a leading position in the global technology industry.

Microsoft Corporation’s key revenue streams

Microsoft’s revenue comes from three core business segments – Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Each of these is described below:

1. Productivity and Business Processes: products and services designed to enhance productivity and business processes. This segment includes the following products:

Microsoft Office (Office 365 and Microsoft 365) – software suites aimed at improving productivity and optimising business processes.

LinkedIn – a professional networking platform.

Dynamics 365 – cloud-based and on-premises business management solutions, including ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management).

The primary clients of this segment include corporate users, small businesses, and individuals.

2. Intelligent Cloud: cloud-based platforms and infrastructure for developing corporate solutions, including:

Microsoft Azure – is one of the world’s largest cloud-based platforms, providing data storage, artificial intelligence, analytics, and app development services.

Server products and licences – Windows Server, SQL Server, Visual Studio, and System Center.

Support and consulting services – technical support, training, and customisation of cloud and server solutions.

This segment focuses on companies developing complex systems and apps based on cloud computing.

3. More Personal Computing: products and services aimed at individual users and personal devices, including:

Windows – an operating system that forms the basis for managing computer hardware and software resources.

Devices – the Surface line-up (laptops, tablets, hybrid devices) and accessories.

Gaming business – Xbox consoles, Xbox Game Pass subscriptions, sales of games and accessories, and revenues from cloud gaming.

Advertising – revenues from the Bing search engine and advertising on other Microsoft platforms.

This segment is targeted at end users and original equipment manufacturers (OEMs).

Microsoft Corporation Q1 2025 financial results

Microsoft released its Q1 fiscal 2025 report on 30 October 2024. Below are the key figures:

• Revenue: 65.6 billion USD (+16%)
• Net income: 24.7 billion USD (+10%)
• Earnings per share: 3.3 USD (+10%)
• Operating profit: 30.6 billion USD (+13%)

Revenue by segment:

• Productivity and Business Processes: 28.3 billion USD (+12%)
• Intelligent Cloud: 24.1 billion USD (+20%)
• More Personal Computing: 13.2 billion USD (+16%)

Microsoft’s management expressed a positive outlook on the Q1 fiscal 2025 results. Chairman and CEO Satya Nadella highlighted the company’s focus on AI transformation and its impact on business operations and workflows. Overall, AI revenue is on track to exceed 10.0 billion USD in annual revenue next quarter, marking the fastest growth in Microsoft’s history. He also noted that the company continues to expand its capabilities and attract new clients, enabling them to leverage AI platforms and tools for business development.

Looking ahead to Q2 fiscal 2025, Microsoft forecast a continuation of the trends observed in the previous quarter. Robust growth was expected from commercial clients driven by long-term contracts, alongside a projected increase in capital expenditure on AI.

Microsoft Corporation Q2 2025 financial results

On 29 January 2025, Microsoft released its Q2 2025 financial results. The key figures are as follows:

• Revenue: 69.6 billion USD (+12%)
• Net income: 24.1 billion USD (+10%)
• Earnings per share: 3.2 USD (+10%)
• Operating profit: 31.7 billion USD (+17%)

Revenue by segment:

• Productivity and Business Processes: 29.3 billion USD (+14%)
• Intelligent Cloud: 25.5 billion USD (+19%)
• More Personal Computing: 14.6 billion USD (unchanged)

Investors were particularly interested in Microsoft’s response to the rapid rise of DeepSeek. In his remarks, CEO Satya Nadella addressed the impact of DeepSeek’s recent achievements in AI. He stated that while its developments are noteworthy, Microsoft remains committed to developing comprehensive AI solutions that integrate with its existing cloud and enterprise services seamlessly. He highlighted the company’s extensive infrastructure and ecosystem, which enable it to meet the growing demand for AI applications while ensuring scalability and reliability for clients worldwide.

CFO Amy Hood provided further details on Microsoft’s financial strategies amid the evolving AI landscape. She explained that the company’s capital expenditure was strategically justified and directed towards AI-driven data centres to support model training and the global deployment of cloud-based AI applications. Hood acknowledged investor concerns over increasing AI-related expenses but reassured them that stringent cost control and a focus on efficiency would enable Microsoft to expand its operating margin despite higher capital investment in this segment.

Overall, Microsoft’s leadership reaffirmed confidence in its AI strategy, stressing that its comprehensive approach and significant infrastructure investments position the company well to capitalise on the growing demand for AI services, even as competition intensifies.

Investors’ reaction to the earnings report was negative, driven by concerns over Azure’s projected growth falling short of expectations and a significant increase in capital expenditure.

Microsoft Corporation Q3 FY 2025 financial results

On 30 April 2025, Microsoft released its Q3 fiscal 2025 report, which ended on 31 March. Below are its highlights compared to the corresponding period in fiscal 2024:

• Revenue: 70.1 billion USD (+13%)
• Net income: 25.8 billion USD (+18%)
• Earnings per share: 3.46 USD (+18%)
• Operating profit: 32.0 billion USD (+16%)

Revenue by segment:

• Productivity and Business Processes: 29.9 billion USD (+10%)
• Intelligent Cloud: 26.8 billion USD (+21%)
• More Personal Computing: 13.4 billion USD (+6%)

Microsoft’s Q3 fiscal 2025 report confirmed its status as one of the leaders in cloud technologies and AI. The results beat market expectations and increased investor interest. The key success factor was the Azure cloud business, which saw a 35% increase in revenue compared to last year. Notably, 16 percentage points of this growth were driven by AI services, highlighting the rapid adoption and commercialisation of artificial intelligence within Microsoft’s products.

CEO Satya Nadella stated that the AI business is on track to reach an annualised turnover of 10 billion USD as early as the next quarter, making it the fastest-growing business in the company’s history. Particularly strong momentum was seen with Microsoft 365 Copilot, now adopted by approximately 70% of Fortune 500 companies. This underscored not only Microsoft’s technological leadership but also its ability to monetise innovation effectively.

The 16% increase in total revenue and 18% rise in profit fuelled a more than 10% surge in Microsoft’s share price following the earnings release, marking one of the strongest post-earnings reactions in the past decade. Investment banks also responded positively: Bank of America and Mizuho raised their price targets to a range of 485-515 USD, highlighting the robust growth prospects and notable potential in generative AI.

For the next quarter, Microsoft expects Azure revenue to rise by 31-32% in constant currency, with AI contributing significantly to this growth. CFO Amy Hood emphasised that growth is expected to accelerate further in the second half of the financial year, driven by increased investments in AI infrastructure.

Overall, Microsoft demonstrated a rare combination of maturity and innovation. The company is successfully scaling its AI solutions while continuing to strengthen its core businesses. For investors, this represents an opportunity to participate in long-term growth with a relatively low risk level, especially amid the global shift towards digital and intelligent solutions.

Nonetheless, there are risks to consider. Firstly, Microsoft’s current market valuation remains elevated, with a forward P/E (price-to-earnings) ratio of approximately 33, which is above the sector average for technology companies. Over the past twelve months, free cash flow (FCF) exceeded 75 billion USD, underscoring financial resilience. However, with a current capitalisation of around 3.1 trillion USD, this corresponds to a free cash flow yield below 2.5%, indicating a premium valuation. Moreover, competitive pressures in the AI segment, including from Alphabet (NASDAQ: GOOG) and Amazon (NASDAQ: AMZN), as well as potential antitrust risks in the US and EU, could introduce further volatility.

Nevertheless, Microsoft’s high margins, Azure’s growth trajectory, and the scaling of AI-driven products position the company as one of the most balanced players in the market. For long-term investors willing to accept a premium valuation in exchange for strong visibility and leadership in key technology trends, Microsoft shares remain highly attractive.

Microsoft Corporation Q4 FY 2025 financial results

On 30 July 2025, Microsoft published its earnings report for Q4 of FY 2025, which ended on 30 June. The key figures are outlined below, compared to the same period in the 2024 financial year:

• Revenue: 76.4 billion USD (+18%)
• Net income: 27.3 billion USD (+24%)
• Earnings per share: 3.65 USD (+24%)
• Operating profit: 34.3 billion USD (+23%)

Revenue by segment:

• Productivity and Business Processes: 33.1 billion USD (+16%)
• Intelligent Cloud: 29.9 billion USD (+26%)
• More Personal Computing: 13.5 billion USD (+9%)

In Q4 2025, Microsoft returned 9.4 billion USD to shareholders through dividends and share repurchases.

On a full-year basis, revenue reached 281.7 billion USD (+15%), operating profit totalled 128.5 billion USD (+17%), net income was 101.8 billion USD (+16%), and EPS stood at 13.64 USD (+16%).

The forecast for Q1 2026 anticipates strong growth in revenue and profits driven by Azure, Copilot, and enterprise AI solutions. Capital expenditures are projected to reach a record 30 billion USD, necessary to expand AI infrastructure across the US and Europe. Over the longer term, Microsoft expects a shift in revenue composition towards high-margin AI software and enterprise solutions. Additionally, growth is expected in Microsoft 365 subscriptions, LinkedIn’s user base, and advertising revenue, fuelled by AI integration. Synergy with GPT models remains a key strategic asset.

Microsoft’s management highlighted the continued expansion of its cloud business and strengthened position in AI. Satya Nadella stated that cloud technologies and AI are the primary drivers of digital transformation, with Azure becoming the platform for the next phase of business development, surpassing 75 billion USD in annual revenue (+34%). The widespread adoption of Copilot and OpenAI models is deepening client engagement and increasing average spend.

Chief Financial Officer Amy Hood noted a 37% increase in commercial bookings and a rise in long-term contracts. High capital investments in AI infrastructure will continue, exerting pressure on margins but laying the groundwork for future growth.

Analysis of key growth Drivers and risks for Microsoft Corporation

The primary growth driver for Microsoft in the 2025 financial year has been its cloud computing and AI segments. Azure delivered an impressive 39% increase in the latest quarter, while total Microsoft Cloud revenue grew by 27%, surpassing 46 billion USD. The company also significantly expanded its commercial bookings, signalling robust future demand. Additionally, the continued rise in Microsoft 365 subscriptions, both in the B2B segment and among end consumers, provided further momentum. Growth in LinkedIn revenue and advertising services demonstrated healthy revenue diversification.

However, despite the strong results, several structural risks persist. Firstly, Microsoft continues to invest heavily in expanding its data centres and AI infrastructure, which is putting pressure on gross margins. The gross margin for Microsoft Cloud declined to 69%, indicating that operational efficiency may face short-term challenges as the company prioritises long-term growth. Moreover, despite its technological leadership, Microsoft faces intensifying competition from Amazon, AWS, and Google Cloud, particularly in securing large enterprise contracts. The emergence of vertical AI solutions from other providers could also cap Microsoft’s market share gains.

External economic factors, including currency fluctuations, geopolitical tensions, and regulatory risks in the EU and the US, continue to be sources of uncertainty. Furthermore, the widespread adoption of AI imposes additional obligations to comply with ethical and legal standards, which could result in higher compliance costs.

As US stock indices continue to climb, systemic market risk is also on the rise. The probability of a market correction is increasing. The record concentration of mega-cap companies (Microsoft being part of the so-called Magnificent Seven) in the S&P 500, combined with the growing influence of passive investments through ETFs, has heightened the market’s sensitivity to any broad revaluation. A decline in the index could exert disproportionate pressure on Microsoft’s share price, irrespective of its fundamental performance.

Growth drivers:

• Significant growth in Azure (39%) and the overall cloud business (27%)
• Transition to AI infrastructure and growth in commercial contracts (commercial bookings +37%)
• Expansion of Microsoft 365 and Dynamics, with an increasing user base and higher average revenue per user (ARPU)

Potential risks:

• Declining gross margins due to scaling AI infrastructure (Microsoft Cloud gross margin fell to 69%)
• Competition from AWS and Google Cloud – Microsoft is only beginning to provide detailed Azure revenue disclosures
• Currency fluctuations and macro-political risks
• Systemic market risk

Expert forecasts for Microsoft Corporation stock for 2025

• Barchart: 39 out of 46 analysts rated Microsoft stock as a Strong Buy, five as a Moderate Buy, and two as Hold. The upper price target is 650 USD, while the lower is 475 USD
• MarketBeat: 30 out of 32 experts assigned a Buy rating to the shares, while two analysts recommended Hold. The upper price target is 675 USD, and the lower is 475 USD
• TipRanks: 33 out of 35 professionals advised Buy, while two analysts recommended Hold. The upper price target is 675 USD, and the lower is 480 USD
• Stock Analysis: 12 out of 30 experts rated the stock as a Strong Buy, 16 as Buy, and two as Hold. The upper price target is 675 USD, and the lower is 475 USD

None of the analysts recommended selling Microsoft Corporation shares.

Technical analysis and 2025 forecast for Microsoft Corporation stock

On the weekly chart, Microsoft Corporation’s share price is trading within an ascending channel and has reached the upper boundary of this channel. On the daily chart, a bearish divergence has formed on the MACD indicator, signalling a potential decline in MSFT’s share price. Based on the current Microsoft Corporation stock performance, the possible scenarios for MSFT’s share price movement in 2025 are as follows:

The base-case forecast for Microsoft Corporation’s shares anticipates a correction towards the nearest support level at 460 USD. A rebound from this level would signal the end of the correction and the resumption of the upward trend. The next upside target would be the upper boundary of the channel at 600 USD.

The alternative outlook for MSFT shares envisions a deeper correction. If the share price breaks below the 460 USD support, MSFT could decline towards the ascending trendline at 400 USD. A drop to 400 USD would represent a 28% correction from the all-time high, a significant move comparable to the corrections seen in 2020 and 2024. A rebound from this trendline would indicate a continuation of the upward trajectory, with MSFT’s share price targeting the upper boundary of the channel at 640 USD.

Conclusion

Microsoft currently presents a rare combination of factors: record-breaking financial results, dominance in cloud and AI, and substantial infrastructure investments. It is a fundamentally strong company with long-term potential. However, in the market, what matters is often not what a company has achieved, but what is already reflected in the price. Today, Microsoft shares are trading at all-time highs, with its market capitalisation approaching 4 trillion USD. This suggests that investors have already priced in near-perfect future scenarios. Even with strong performance, the share price may undergo a correction, as excessive market expectations themselves become a risk factor.

An additional layer of risk stems from the overheated state of the broader equity market. The S&P 500 index is rising primarily due to a handful of mega-cap companies, whose combined weight in the index has reached record levels. Such concentration amplifies bubble-like characteristics and increases the likelihood of a sharp correction, irrespective of Microsoft’s fundamentals.

Microsoft remains one of the strongest companies globally and appears robust from a long-term perspective, but its current valuation is vulnerable to broader market corrections. A balanced strategy could be prudent for investors: maintaining a core position for long-term growth while locking in partial profits at the peak to mitigate potential losses should a broader market downturn occur.

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