What Happened?
Shares of tech giant Microsoft (NASDAQ:MSFT) jumped 10.4% in the morning session after the company reported strong first-quarter 2025 results, with revenue and operating income both beating Wall Street estimates, driven by surging demand for cloud and AI services, signaling resilient enterprise spend amid broader tech budget scrutiny.
Sales rose 13%, supported by broad-based strength across all business segments. While Productivity and Business Processes grew 10% and More Personal Computing rose 6%, the standout performance in Azure tipped the scales, thanks to increased customer adoption of AI workloads and infrastructure.
The bottom line was equally strong. Operating income climbed 16%, outpacing revenue growth, with operating margins expanding across all three segments. This margin strength helped boost net income, pushing earnings past analysts' estimates. Overall, this was a solid quarter with key areas of upside.
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What The Market Is Telling Us
Microsoft’s shares are quite volatile and have had 18 moves greater than 2.5% over the last year. But moves this big are rare even for Microsoft and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 7.1% on the news that stocks heavily tied to the AI market took a hit after Chinese artificial intelligence startup DeepSeek released a new large language model (DeepSeek-R1) that ranks competitively on key global benchmarks (coding competitions, math evaluations), uses less advanced semiconductor chips, costs significantly less to build (at $5.5 million - excluding non-compute costs), and has already achieved strong adoption after topping the iPhone App Store for AI apps.
Notably, the company also open-sourced this model, a move that might make it harder for rivals to justify huge upfront expenditures on hardware, software, and expertise to develop similar systems.
Speaking at the World Economic Forum in Davos, Switzerland, Microsoft CEO Satya Nadella praised DeepSeek's efforts, calling the new model "super impressive" for its open-source design, efficient inference-time computing, and high compute efficiency. "We should take the developments out of China very, very seriously," he added.
Nadella's comments suggest that upstarts like DeepSeek could reshape the competitive landscape of AI. DeepSeek's announcement disrupts long-held assumptions in key ways: 1) It undercuts the narrative that bigger budgets and access to top-tier chips are the only ways forward for AI development. 2) By using less advanced hardware, DeepSeek opens the door for innovators who face high chip costs or export restrictions, reaffirming they can still compete. 3.) The model's success questions the growth narrative of chipmakers like Nvidia, whose soaring valuations depend on the demand for cutting-edge, high-performance hardware.
Overall, DeepSeek's model demonstrates that AI innovation is no longer a race fueled solely by how much you spend, but rather by how resourceful you can be with what you have.
Microsoft is up 3% since the beginning of the year, and at $431.08 per share, it is trading close to its 52-week high of $467.56 from July 2024. Investors who bought $1,000 worth of Microsoft’s shares 5 years ago would now be looking at an investment worth $2,469.
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