Microsoft chief financial officer Amy Hood had a message for Microsoft employees in an internal memo amid recent AI news: Keep your head down and focus.
Hood sends the emails quarterly when Microsoft reports earnings, and they mostly rehash the public financial reports.
This quarter’s email was preceded by AI news, including Chinese AI startup DeepSeek’s model that raised questions about infrastructure spending, developments with White House AI policy, and a joint venture from OpenAI, Oracle, and SoftBank called Stargate to spend $500 billion on AI infrastructure, announced by President Donald Trump.
“There has been a lot of AI-related news this week, but our focus is clear: delivering real-world AI solutions while simultaneously globally scaling our cloud and AI infrastructure to support our partners and customers as they adopt, build, and grow as well,” Hood wrote, according to a copy of the email viewed by Business Insider. “As a company, we remain steadfast in the priorities which are required to deliver on that product promise — security, quality, and AI innovation. Thank you for your focus as we work together for our customers who rely on us.”
Chinese AI startup DeepSeek recently launched a model that competes with OpenAI at a fraction of the cost. The release has caused many in the technology industry to call into question the trillions of dollars being spent on AI infrastructure.
Microsoft is familiar with criticisms of the industry’s significant spending on AI infrastructure and whether it will lead to actual returns. The company recently said it plans to invest about $80 billion to build AI-enabled data centers in its 2025 fiscal year alone.
The debate around DeepSeek set the stage for Microsoft’s second-quarter earnings release on Wednesday. The company’s stock dropped after it reported its AI and cloud computing services grew less than expected.
Read Amy Hood’s full memo to Microsoft employees:
“Team, This afternoon, we announced our second-quarter financial results. We grew revenue by 12% to $69.6 billion, operating income by 17% to $31.7 billion, and earnings per share by 10% to $3.23. Our results exceeded our Q2 outlook given to Wall Street. Our Microsoft Cloud revenue was $40.9 billion, up 21% year-over-year. Our results reflect strong customer demand as we continue to create cutting-edge capabilities that are driving real value and measurable impact for our customers. This quarter, our AI business has surpassed an annual revenue run rate of $13 billion, up 175% year-over-year. Highlights from our commercial business, which grew 17%, are below: Commercial bookings were significantly ahead of expectations and increased 67% and 75% in constant currency. The outperformance was primarily driven by Azure commitments from our partner, OpenAI, and strong execution across our core annuity sales motions.
Azure and other cloud services revenue grew 31%, landing at the lower end of our expectations. This includes 13 points of growth from AI services, which exceeded expectations. Growth in non-AI services came in slightly below our expectations, influenced by some near-term execution challenges.Microsoft 365 commercial cloud revenue grew 16%, slightly ahead of expectations, driven by our E5 suite and M365 Copilot. M365 Copilot has seen growth in adoption, expansion, and usage.
Dynamics 365 revenue grew 19% driven by growth across all workloads.We invested $22.6 billion in capital expenditures as we invest against both short- and long-term demand signals for our Microsoft Cloud inclusive of AI workloads. In our consumer business, revenue grew 2%, which was better than expected. As we work to accelerate growth in our consumer business, we remain focused on delivering consumer experiences that delight and earn user loyalty. Below are key points from our consumer businesses:Search and news advertising ex TAC revenue grew 21%, above expectations, with rate expansion and continued volume growth from Edge and Bing. Windows OEM and devices revenue grew 4%, ahead of our expectations, driven by commercial PC inventory builds in advance of Windows 10 EOS as well as uncertainty around tariffs.
Gaming revenue decreased 7%, primarily driven by hardware. Xbox Content and services revenue increased 2%, ahead of expectations, driven by better performance in Blizzard and Activision content, including Call of Duty.LinkedIn revenue grew 9%, reflecting growth across all lines of business. However, ongoing weakness in the hiring market in key verticals negatively impacted growth in the Talent Solutions business. As a reminder, our stock trades not only on our results, but on our outlook for the next quarter and beyond. Investors listen to our earnings call to gain deeper insights into these indicators, and I would encourage you to listen too, as it offers useful context to help align our efforts in driving toward our priorities and commitments. You can join the call live today at 2:30PM Pacific Time, listen on-demand, or read the transcript on the Investor Relations Website. There has been a lot of AI-related news this week, but our focus is clear: delivering real-world AI solutions while simultaneously globally scaling our cloud and AI infrastructure to support our partners and customers as they adopt, build, and grow as well. As a company, we remain steadfast in the priorities which are required to deliver on that product promise — security, quality, and AI innovation. Thank you for your focus as we work together for our customers who rely on us. With appreciation and gratitude, Amy”
Are you a Microsoft employee, or do you have insight to share? Contact the reporter Ashley Stewart via the encrypted messaging app Signal (+1-425-344-8242) or email (astewart@businessinsider.com). Use a nonwork device.
