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Global software, services and hardware conglomerate – and Magnificent Seven constituent – Microsoft Inc (MSFT) announced its earnings for the 3rd quarter of its Fiscal Year (FY) 2025 on the 30th of April, a day marked by a number of economic data releases which showed U.S. Gross Domestic Product (GDP) shrinking for the first time in three quarters, non-farm employment running at a little over half of expectations, and pending home sales reportedly spiking to 6.1% over an expectation of 1%. While markets were affected, Microsoft closed the day strong and largely retained its strength since.
An examination of trends tells one why.
Trend AnalysisOver the past nine months (9M) of its FY 2025, the company continues to show long-standing growth stability:
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Source: Company Information; Leverage Shares analysis
In top and bottom line trends, 2023 had been the weakest year for the company wherein the company’s net revenues showed a 7% growth and earnings per share growth was essentially flat. In all other years since 2018, these two line items have shown solid double-digit growth.
If present trends carry over for one more quarter, the company will close out its FY 2025 with a 12% growth in revenue as well as earnings per share. Cost of revenue is inching to grow by a slightly larger margin and mostly driven by higher service costs. This possibly ties in with Research & Development (R&D) expense trends, which will likely be about 2-3% higher than in the previous FY. However, at this growth rate, R&D expense growth is the lowest seen since 2018.
An arguably pleasant part of the financial statements released by the company is the many ways in which line items are essentially sliced and diced to highlight the various complex business segments the company operates. The company has three reportable segments:
Productivity and Business Processes („PBP“), which includes Microsoft 365, LinkedIn and Enterprise Resource Planning-driven products such as Dynamics;
Intelligent Cloud („IC“), which comprises of the likes of cloud services such as Azure, AI consumption services, Server services, Visual Studio and enterprise partner services;
More Personal Computing („MPC“), which comprises of Windows, Surface hardware, HoloLens, gaming hardware as well as content, search engine Bing, Microsoft News (or „MSN“), and so forth.
However, this isn’t without some shuffling: in August 2024, the company folded all the commercial components of Microsoft 365 together into the „Productivity and Business Processes“ segment, which causes some changes in assessing the impact/trends in these segments. Notwithstanding these changes, the segment-wise trend performance shows a clear champion in growth in the present day.
Source: Company Information; Leverage Shares analysis
Until the end of 2024, „PBP“ accounted for around a third of both revenue and operating income. Across 9M 2025, „PBP“ delivers 43% of revenue and 54% of operating income, with trends indicating that it will close the FY with 16% revenue growth and 33% operating income growth. Operating income tends to tally more with earning per share, so it’s clear that this segment is poised to be the company’s growth engine.
„IC“ has slid from the low forties in percentage contribution to both revenue and operating income to mid/high thirties in 9M 2025, but this is most likely due to the reorganization of businesses enacted. „MPC“ has seen the most dramatic change, going from a 38% revenue share in 2018 to a 20% share in 9M 2025 while operating income went from 30% to around 12% in the same period.
The company also did a significant reordering of revenue reported along products and services, so a trend analysis would be quite efficiency. However, comparing 9M 2025 with 9M 2024 has clear indicators regarding which of its numerous offerings are essentially driving revenue.
Source: Company Information; Leverage Shares analysis
The „corporate client“ rules the roost in terms of importance: server products and cloud services as well as Microsoft 365 Commercial services both run nearly neck and neck in revenue contribution and together comprise a solid 65% of net revenue. The AI boom manifests quite clearly here, with server-related offerings running a growth rate nearly twice that of Microsoft 365 Commercial relative to 9M 2024.
Gaming comes a distant third at 9% revenue contribution at nearly $18 billion for 9M 2025 and a 9% growth over 9M 2024. Herein lies a crucial acquisition made by the company: gaming giant Activision Blizzard, Inc., which was acquired on October 13, 2023 for a total purchase price of $75.4 billion (mostly cash) which was allocated to total assets and liabilities as of on September 30, 2024.
With Gaming delivering nearly 24% of the purchase price in 9M 2025 alone, it could be argued that the acquisition was a well-placed move. However, industry analysts disagree1: vertical integration with the company’s Azure servers hasn’t been done while Activision is reluctant to implement subscription models on game releases. Added to that is the fact that Xbox subscriptions and uptakes are slowing down, which poses additional problems.
At a 9% revenue contribution level, it’s arguable as to whether this is a real issue. However, becoming a gaming leader has been a long-held goal for management which continues to remain elusive.
In ConclusionOutside of concerns over gaming contributions, the company’s growing bent towards the „corporate clients“ has yielded rich results for earnings and revenue – much as it did for Nvidia a few years ago. „Corporate clients“ tend to have a high retention rate and less vulnerable to recession, the outlook for which is enhanced in the present day. In addition, the company has been a regular dividend payer since 2013.
A (mostly) recession-proof „corporate client“ dominance and a highly stable market mix wherein almost exactly 51% of all revenues have been sourced from the U.S. since 2018 indicates that this is a surefooted company with solid product/service positioning. For investors who currently don’t have any exposure to the stock, it’s an easy choice to consider. For those who hold the stock in their portfolio, the dividend yield is a small but not insignificant incentive to continue holding on to.
All in all, the company seems to be doing mostly fine for now.
Professional investors in Europe might like to consider the +3x Long Microsoft ETP (MSF3) for magnified exposure during upticks of the stock’s trajectory while the -3x Short Microsoft ETP (MS3S) can be employed during downturns for magnified gains.
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