Microsoft shares fell about 7% in extended trading on Tuesday after the company reported softer cloud revenue than expected in its fiscal first quarter and gave weak quarterly guidance.
Here’s how the company did:
Earnings: $2.35 per share, vs. $2.30 per share as expected by analysts, according to Refinitiv.
Revenue: $50.12 billion, vs. $49.61 billion as expected by analysts, according to Refinitiv.
With respect to guidance, Microsoft sees $52.35 billion to $53.35 billion in revenue for the fiscal second quarter, which implies 2% growth at the middle of the range. Analysts polled by Refinitiv had been looking for revenue of $56.05 billion. Microsoft’s implied operating margin for the fiscal second quarter was about 40%, narrower than the 42% consensus among analysts polled by StreetAccount.
In the fiscal first quarter, total revenue grew 11% year over year, according to a statement.
Cyclical trends are affecting Microsoft’s consumer business, CEO Satya Nadella said on a conference call with analysts.
Net income fell by 14% to $17.56 billion. Microsoft had a $3.3 billion tax benefit in the year-ago quarter. But the company lengthened the useful lives of servers and networking equipment to six years from four years, resulting in an $859 million bump to net income in the fiscal first quarter. Still, the company’s gross margin, at 69.2%, trailed the StreetAccount consensus estimate of 69.8%.
Microsoft’s Intelligent Cloud business segment, which includes the Azure public cloud, as well as Windows Server, SQL Server, Nuance and Enterprise Services, generated $20.33 billion in quarterly revenue. That’s up 20% and slightly less than the $20.36 billion consensus among analysts polled by StreetAccount.
Azure revenue grew 35% in the quarter, Microsoft said, compared with 40% growth in the previous quarter. Analysts polled by CNBC had expected 36.4% growth, while analysts surveyed by StreetAccount had been looking for 36.9% Azure growth. Growth in Azure consumption continued to moderate, and higher energy costs in the quarter hurt the gross margin of Azure, Amy Hood, the company’s finance chief, said on the call.
For the fiscal second quarter, Hood said Azure growth should fall sequentially by about 5% in constant currency, to about 37%. She did not provide a growth rate in dollars, and the company doesn’t disclose Azure revenue in dollars. Analysts polled by StreetAccount had expected 39.4% Azure growth in constant currency.
The Productivity and Business Processes segment that contains Microsoft 365 productivity software subscriptions (the company is in the midst of rebranding the bundle from Office 365), LinkedIn and Dynamics, posted $16.47 billion in revenue, up 9% and above the $16.13 billion StreetAccount consensus.
A majority of the Microsoft 365 bookings during the quarter came from E5, a higher-priced bundle, Hood said.
Revenue from the More Personal Computing segment totaled $13.33 billion, down slightly and higher than the $13.12 billion StreetAccount consensus. The segment includes Windows, as well as Xbox, Surface and advertising from the Bing search engine.
Revenue from sales of Windows licenses to device makers dropped 15% year over year, steeper than any quarter since 2015 and worse than the outlook Hood gave in July for a decline in the high single digits. The company said the PC market continued to deteriorate during the quarter.
That result wasn’t a complete surprise. Technology industry researcher Gartner said earlier this month that PC shipments in the quarter fell 19.5% year over year, and chipmaker AMD earlier this month issued lower-than-expected preliminary quarterly results tied to a “weaker than expected PC market and significant inventory correction actions across the PC supply chain.”
Hood said on Tuesday that the materially weaker demand for PCs seen in September will continue to affect its consumer business. She called for a percentage decline in the high 30s for Windows revenue from device makers in the fiscal second quarter.
For the first time, revenue in the quarter from the Microsoft Cloud metric, encompassing Azure, commercial Office 365 subscriptions, commercial parts of LinkedIn and Dynamics 365, exceeded 50% of overall company revenue.
During the quarter, Microsoft started rolling out the first annual update to its Windows 11 operating system since releasing the original version last year, and the company announced plans to slow down its pace of hiring said it was cutting less than 1% of employees. Microsoft also introduced Viva Engage, a portal in the Teams communication app where co-workers can share video stories.
“In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way,” Nadella said in the company’s earnings statement.
Operating expense growth should moderate materially during the 2023 fiscal year as the company focuses on improving employee productivity, Hood said.
The quarterly results include small adjustments in the way that Microsoft reports revenue. Revenue from HoloLens augmented-reality devices will appear in the More Personal Computing segment instead of the Intelligent Cloud segment. Microsoft adjusted its forecast for the segments by about $100 million in connection with the change.
Notwithstanding the after-hours move, Microsoft shares have fallen about 26% so far this year, while the S&P 500 stock index is down 19% over the same period.
Co-founder and chief executive officer of Nvidia Corp., Jensen Huang attends the 9th edition of the VivaTech trade show in Paris on June 11, 2025.
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Nvidia CEO Jensen Huang has downplayed U.S. fears that his firm’s chips will aid the Chinese military, days ahead of another trip to the country as he attempts to walk a tightrope between Washington and Beijing.
In an interview with CNN aired Sunday, Huang said “we don’t have to worry about” China’s military using U.S.-made technology because “they simply can’t rely on it.”
“It could be limited at any time; not to mention, there’s plenty of computing capacity in China already,” Huang said. “They don’t need Nvidia’s chips, certainly, or American tech stacks in order to build their military,” he added.
The comments were made in reference to years of bipartisan U.S. policy that placed restrictions on semiconductor companies, prohibiting them from selling their most advanced artificial intelligence chips to clients in China.
Huang also repeated past criticisms of the policies, arguing that the tactic of export controls has been counterproductive to the ultimate goal of U.S. tech leadership.
“We want the American tech stack to be the global standard … in order for us to do that, we have to be in search of all the AI developers in the world,” Huang said, adding that half of the world’s AI developers are in China.
That means for America to be an AI leader, U.S. technology has to be available to all markets, including China, he added.
Washington’s latest restrictions on Nvidia’s sales to China were implemented in April and are expected to result in billions in losses for the company. In May, Huang said chip restrictions had already cut Nvidia’s China market share nearly in half.
Last week, the Nvidia CEO met with U.S. President Donald Trump, and was warned by U.S. lawmakers not to meet with companies connected to China’s military or intelligence bodies, or entities named on America’s restricted export list.
According to Daniel Newman, CEO of tech advisory firm The Futurum Group, Huang’s CNN interview exemplifies how Huang has been threading a needle between Washington and Beijing as it tries to maintain maximum market access.
“He needs to walk a proverbial tightrope to make sure that he doesn’t rattle the Trump administration,” Newman said, adding that he also wants to be in a position for China to invest in Nvidia technology if and when the policy provides a better climate to do so.
But that’s not to say that his downplaying of Washington’s concerns is valid, according to Newman. “I think it’s hard to completely accept the idea that China couldn’t use Nvidia’s most advanced technologies for military use.”
He added that he would expect Nvidia’s technology to be at the core of any country’s AI training, including for use in the development of advanced weaponry.
A U.S. official told Reuters last month that China’s large language model startup DeepSeek — which says it used Nvidia chips to train its models — was supporting China’s military and intelligence operations.
On Sunday, Huang acknowledged there were concerns about DeepSeek’s open-source R1 reasoning model being trained in China but said that there was no evidence that it presents dangers for that reason alone.
Huang complimented the R1 reasoning model, calling it “revolutionary,” and said its open-source nature has empowered startup companies, new industries, and countries to be able to engage in AI.
“The fact of the matter is, [China and the U.S.] are competitors, but we are highly interdependent, and to the extent that we can compete and both aspire to win, it is fine to respect our competitors,” he concluded.
Marek Antoni Iwanczuk | Sopa Images | Lightrocket | Getty Images
Google on Friday made the latest a splash in the AI talent wars, announcing an agreement to bring in Varun Mohan, co-founder and CEO of artificial intelligence coding startup Windsurf.
As part of the deal, Google will also hire other senior Windsurf research and development employees. Google is not investing in Windsurf, but the search giant will take a nonexclusive license to certain Windsurf technology, according to a person familiar with the matter. Windsurf remains free to license its technology to others.
“We’re excited to welcome some top AI coding talent from Windsurf’s team to Google DeepMind to advance our work in agentic coding,” a Google spokesperson wrote in an email. “We’re excited to continue bringing the benefits of Gemini to software developers everywhere.”
The deal between Google and Windsurf comes after the AI coding startup had been in talks with OpenAI for a $3 billion acquisition deal, CNBC reported in April. OpenAI did not immediately respond to a request for comment.
The move ratchets up the talent war in AI particularly among prominent companies. Meta has made lucrative job offers to several employees at OpenAI in recent weeks. Most notably, the Facebook parent added Scale AI founder Alexandr Wang to lead its AI strategy as part of a $14.3 billion investment into his startup.
Douglas Chen, another Windsurf co-founder, will be among those joining Google in the deal, Jeff Wang, the startup’s new interim CEO and its head of business for the past two years, wrote in a post on X.
“Most of Windsurf’s world-class team will continue to build the Windsurf product with the goal of maximizing its impact in the enterprise,” Wang wrote.
Windsurf has become more popular this year as an option for so-called vibe coding, which is the process of using new age AI tools to write code. Developers and non-developers have embraced the concept, leading to more revenue for Windsurf and competitors, such as Cursor, which OpenAI also looked at buying. All the interest has led investors to assign higher valuations to the startups.
This isn’t the first time Google has hired select people out of a startup. It did the same with Character.AI last summer. Amazon and Microsoft have also absorbed AI talent in this fashion, with the Adept and Inflection deals, respectively.
Microsoft is pushing an agent mode in its Visual Studio Code editor for vibe coding. In April, Microsoft CEO Satya Nadella said AI is composing as much of 30% of his company’s code.
The Verge reported the Google-Windsurf deal earlier on Friday.
Jensen Huang, CEO of Nvidia, holds a motherboard as he speaks during the Viva Technology conference dedicated to innovation and startups at Porte de Versailles exhibition center in Paris, France, on June 11, 2025.
The sale, which totals 225,000 shares, comes as part of Huang’s previously adopted plan in March to unload up to 6 million shares of Nvidia through the end of the year. He sold his first batch of stock from the agreement in June, equaling about $15 million.
Last year, the tech executive sold about $700 million worth of shares as part of a prearranged plan. Nvidia stock climbed about 1% Friday.
Huang’s net worth has skyrocketed as investors bet on Nvidia’s AI dominance and graphics processing units powering large language models.
The 62-year-old’s wealth has grown by more than a quarter, or about $29 billion, since the start of 2025 alone, based on Bloomberg’s Billionaires Index. His net worth last stood at $143 billion in the index, putting him neck-and-neck with Berkshire Hathaway‘s Warren Buffett at $144 billion.
Shortly after the market opened Friday, Fortune‘s analysis of net worth had Huang ahead of Buffett, with the Nvidia CEO at $143.7 billion and the Oracle of Omaha at $142.1 billion.
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The company has also achieved its own notable milestones this year, as it prospers off the AI boom.
On Wednesday, the Santa Clara, California-based chipmaker became the first company to top a $4 trillion market capitalization, beating out both Microsoft and Apple. The chipmaker closed above that milestone Thursday as CNBC reported that the technology titan met with President Donald Trump.
Brooke Seawell, venture partner at New Enterprise Associates, sold about $24 million worth of Nvidia shares, according to an SEC filing. Seawell has been on the company’s board since 1997, according to the company.
Huang still holds more than 858 million shares of Nvidia, both directly and indirectly, in different partnerships and trusts.