If Satya Nadella has his way, there will only be one cloud in the sky and it will be Azure.
Nearly five years ago, the Microsoft (MSFT) CEO told tech leaders and developers at a tech summit in India that the software giant was going to build Azure, the company’s cloud computing platform, “as the world’s computer.”
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“If anything, the last 10 years have taught us that technology is becoming so ubiquitous, so pervasive in our society and in our lives, it also comes with responsibility,” Nadella said in February 2020.
“Every single developer choice, that design ethos you exhibit, the ethics of the diverse team you have, are going to matter in terms of are we going to create a much more inclusive world,” he added.
Azure, announced in 2008 and officially released in 2010, offers a range of cloud services, such as computing, analytics, storage and networking.
Microsoft said that 95% of Fortune 500 companies trust Azure to help them run their businesses and meet their enterprise-scale demands.
Azure and Microsoft’s cloud computing business were a key aspect of the Redmond, Wash., company’s fiscal-second-quarter report on Jan. 29.
Microsoft CEO Satya Nadella says the software giant has seen continued strength in cloud services.
Justin Sullivan/Getty Images
Microsoft CEO: DeepSeek has real innovations
“This quarter, we saw continued strength in Microsoft Cloud, which surpassed $40 billion in revenue for the first time, up 21% year over year,” Nadella told analysts during the company’s earnings call. “Enterprises are beginning to move from proof of concepts to enterprise-wide deployments to unlock the full [return on investment] of AI.”
Microsoft beat Wall Street’s earnings and revenue forecasts but its intelligent-cloud business fell short of estimates.
The software giant posted earnings just days after the tech sector was sent reeling by the debut of the Chinese AI chatbot DeepSeek. The system’s developers said DeepSeek was built at a fraction of the cost of industry-leading models like OpenAI’s ChatGPT because it uses fewer advanced chips.
Microsoft, which holds a 49% stake in OpenAI; Facebook parent Meta Platforms (META) , Amazon (AMZN) and Google parent Alphabet (GOOGL) are set to spend as much as $300 billion on AI projects this year alone.
Estimates for overall spending on AI technology over the next three years has been pegged at around $2 trillion.
“I think DeepSeek has had some real innovations,” Nadella told analysts. “And that is some of the things that even OpenAI found in ’01. Obviously now that all gets commoditized and it’s going to get broadly used.”
Nadella said that DeepSeek R1 is now available in the model catalog on Azure AI Foundry and GitHub.
“One of the key things to note in AI is you just don’t launch the frontier model — but if it’s too expensive to serve, it’s no good, right?” he said. “It does — it won’t generate any demand.”
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The company’s revenue from its commercial cloud segment, which includes cloud services, surged 21% year-over-year to $40 billion but missed analysts’ expectations of $41.1 billion.
in the most recent quarter net income was up 10% to $24.1 billion as total revenue rose 12% to $69.6 billion. The company estimated revenue for the current quarter at between $67.7 billion and $68.7 billion.
Microsoft’s intelligent-cloud business, which includes the Azure platform, pulled in $25.5 billion in revenue, while Wall Street was looking for $25.8 billion.
Chief Financial Officer Amy Hood said “revenue will continue to be driven by Azure,” adding that the company expected the platform’s fiscal-third-quarter revenue to grow 31% to 32% “driven by strong demand for our portfolio of services.”
“We remain committed to balancing operational discipline with continued investments in our cloud and AI infrastructure,” she said.
Veteran trader disappointed by Azure
TheStreet Pro’s Stephen “Sarge” Guilfoyle was not pleased with Microsoft’s numbers.
“I have to say that, as a longtime shareholder of Microsoft and a longtime public bull in both the firm and in this CEO, I am disappointed,” he said.
“Sure, the quarter was still strong, and the balance sheet is still stellar. There is no need to panic and no need for a fire sale.
“That said, Azure is growing but not like a weed,” he noted. “The free-cash-flow number is certainly wonky.”
Related: Analyst revisits Microsoft stock price target as DeepSeek tests OpenAI
Guilfoyle, whose career dates back to Wall Street in the 1980s, said Microsoft’s guidance was not just conservative overall but conservative across every business segment it operates.
“I am not ready to give up on Microsoft, but make no mistake, this is a couple of quarters that I have been underwhelmed after earnings,” he said.
Several investment firms issued research reports after Microsoft released its quarterly results.
UBS lowered the firm’s price target on Microsoft to $510 from $525 and affirmed a buy rating on the shares.
Microsoft’s quarter was weaker than expected, with the company pulling its guidance for a second-half acceleration at Azure, citing sales execution, the investment firm said in a research note.
Improved fiscal 2025 margin guidance and MSFT’s guidance for capital-spending growth to moderate in fiscal 2026 will help, UBS said. But three straight quarters of Azure disappointment with a different explanation each time undermine confidence in the growth outlook, UBS said.
Morgan Stanley: Microsoft cash flow up in fiscal ’26
Morgan Stanley analyst Keith Weiss lowered the firm’s price target on Microsoft to $530 from $540 and maintained an overweight rating on the shares.
Commercial-bookings growth of 75% year-over-year in constant currency accelerated well beyond expectations, but Azure growth of 31% on that basis came in 1 percentage point below expectations, the analyst said.
While Azure was “disappointing,” Weiss said, strength in the generative-AI ramp and moderating growth in capital outlays should support faster free-cash-flow growth in fiscal 2026.
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And Mizuho lowered its price target on Microsoft to $500 from $510 and reiterated an outperform rating on the shares.
The company reported a “decent” fiscal Q2, but Azure revenue growth of 31% year-over-year was at the low end of management’s guidance range, the analyst tells investors in a research note. This stemmed from what the analyst called Microsoft’s subpar non-artificial-intelligence go-to-market execution.
Meanwhile, the company’s Q3 revenue guidance lagged Wall Street expectations due to a $1 billion currency headwind, Mizuho added.
Nonetheless, the investment firm said it remained confident that Microsoft’s revenue-growth opportunities over the medium term and beyond are greater than many realize.
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