Microsoft’s AI business is booming — Xbox, not so much

Microsoft’s cloud and AI businesses are doing pretty well — and their impact is being felt across the company. In its Q2 2025 earnings, Microsoft announced revenue of $69.6 billion for the quarter, up 12 percent year-over-year, and net income of $24.1 billion, which is up 10 percent year-over-year.

As for the AI business, CEO Satya Nadella says in a statement that it has “surpassed an annual revenue run rate of $13 billion, up 175 percent year-over-year.” The company’s Azure and other cloud services business grew 31 percent year-over-year, a slight decrease from 33 percent YoY growth the previous quarter.

The company’s gaming revenues didn’t fare so well. Gaming revenue declined 7 percent, and Xbox hardware revenue declined 29 percent. Microsoft has been moving away from a focus on its own hardware with messaging like its “​​This is an Xbox” ad campaign and bringing Xbox Game Studios games to other platforms, and those changes could be contributing to the decline.

That means the focus is instead on games and services, and that’s where the business is seeing some improvements. Xbox content and services revenue were up 2 percent, “driven by growth in Xbox Game Pass,” Microsoft says. (Last quarter, Microsoft’s software gaming revenues were way up even as Xbox hardware revenue declined.)

Microsoft also said that it saw Windows OEM and Devices revenue growth of 4 percent year-over-year, a slight bump from 2 percent in Q1.