Microsoft Doubles Down on AI in Q2, Copilot Growth Leads the Way

Microsoft (NASDAQ:MSFT) reported second-quarter revenue of $81.3 billion, an increase of 17% compared to the prior year. Earnings per share rose 24% to $4.14. Microsoft Cloud revenue exceeded $50 billion for the first time, growing 26% year-over-year.

The company also saw strong commercial bookings, up 230%, driven in part by long-term cloud agreements related to artificial intelligence services.

Its commercial remaining performance obligation reached $625 billion, up 110%.

The company reported $37.5 billion in capital expenditures for the quarter, with approximately $25 billion directed toward short-term assets such as GPUs and CPUs to support AI and cloud growth.

Executives outlined efforts to expand infrastructure, develop in-house hardware, and support enterprise adoption of AI tools. Microsoft described progress in areas such as AI-enabled productivity software and tools for building and managing custom applications using enterprise data. However, the company acknowledged that capacity constraints are affecting the pace at which it can fulfill AI and cloud demand.

Executives said that demand for Azure and AI services continues to exceed supply, and that current infrastructure is being allocated carefully across R&D and external customer workloads.

Why It Matters: Many IT and business leaders are working to evaluate and manage AI capabilities within their organizations. Microsoft is responding by expanding its infrastructure and product offerings to support those needs, including data services and model customization. The company is also introducing new controls and governance features for AI systems, which may help enterprises address risk and compliance concerns.

• Data center Expansion Continues To Support AI Demand: Microsoft reported increased infrastructure capacity during the quarter, adding nearly one gigawatt of data center resources. The company discussed facility designs intended to handle higher computing workloads, including AI-related processing. Management noted that these investments are being made to keep pace with usage growth across cloud services. The buildout is expected to remain a key part of Microsoft’s operational planning as demand continues to exceed supply in some areas.

• Microsoft Adds More Control Over Its Hardware Roadmap: The company introduced Maia 200, an internally developed chip designed for AI inference workloads, alongside updates to its Cobalt 200 CPU for general cloud computing. Executives framed these efforts as part of managing performance and cost over time. Microsoft also reiterated that it will continue working with partners such as NVIDIA and AMD. The combination of internal and external hardware sourcing is meant to provide flexibility as workloads evolve.

• Enterprise AI Platforms Gain Traction With Customers: The company reported that more than 31,000 organizations now use Microsoft Fabric, which is used to manage data and deploy AI models in organizational environments. Fabric now has more than 31,000 customers and an annual revenue run rate above $2 billion. Foundry is being used by customers building AI systems connected to internal business data. The company cited examples across sectors including airlines, automotive, and agriculture.

• Copilot Usage Expands Across Large Organizations: Microsoft stated that paid Microsoft 365 Copilot seats reached 15 million, with higher usage intensity year-over-year. The company described Copilot as increasingly embedded in daily workflows such as writing and task support. Features like Work IQ are designed to generate responses grounded in organizational context and permissions. Management highlighted large deployments among government agencies, universities, and multinational enterprises.

• AI Tools Extend Across Microsoft’s Product Lines: Tools for building and managing custom agents are now available through low-code and no-code platforms. Microsoft said most Fortune 500 companies are now using these tools. GitHub Copilot adoption also continues to grow, particularly among software development teams. In the security domain, Microsoft has added AI-based features to existing tools and reported examples of reduced manual workload among customers.

Go Deeper -> Microsoft Earnings Report – MarketBeat

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