The news: Microsoft met expectations in its latest earnings report, delivering steady growth in cloud and AI services while facing rising questions about its AI investments and a potential TikTok acquisition.

By the numbers:

• Revenues: $69.6 billion, up 12% YoY.
• Net income: $24.1 billion, up 10% YoY.
• Cloud revenues: $40.9 billion, up 21% YoY.
• Advertising revenues: Up 21%, reflecting momentum in AI-driven ad tools.
• LinkedIn revenues: Increased 9%, showing stable business demand.
• Gaming (Xbox content & services): Up 2%, a slower growth area, though positive due to Game Pass.
• AI impact: CEO Satya Nadella highlighted Microsoft’s AI business hitting a $13 billion annual run rate, up 175% year-over-year.

Why it matters: AI growth continues, but cost concerns and competition are mounting.

• DeepSeek’s AI breakthrough challenges the industry’s spending model. The Chinese startup claims it trained its latest model at a fraction of what US firms pay, raising questions about whether Microsoft's massive AI infrastructure investments are justified.
• Cloud remains Microsoft’s strongest growth engine. Azure’s gains reinforce AI’s role in driving demand, though supply constraints on advanced chips could limit expansion.
• Marketers must weigh AI-driven price hikes. Microsoft increased Microsoft 365 prices in six markets, testing the waters for AI-powered subscription tiers. However, customer pushback suggests adoption may not be as seamless as expected.

A potential TikTok deal could reshape Microsoft’s ad business. A deal could strengthen Microsoft’s advertising reach, but regulatory hurdles and content moderation concerns loom large.

Our take: Microsoft is delivering steady results, but investors want more than stability.

• AI is fueling Microsoft’s cloud revenues, but DeepSeek’s emergence signals shifting industry economics. If cheaper AI models become viable, Microsoft may need to adjust its spending.
• Copilot’s pricing experiment shows AI adoption isn’t guaranteed. AI-powered premium services need to prove their worth—otherwise, Microsoft risks alienating price-sensitive users.
• TikTok could be a game-changer, but it’s a regulatory minefield. A successful acquisition would boost Microsoft’s ad revenues and AI capabilities, but political and legal scrutiny could stall progress.
• For now, advertising remains an underwhelming piece of the puzzle. While Microsoft’s ad business is growing, it still lags behind Google and Meta in market influence.

Microsoft met expectations, but the bigger questions—AI competition, ad growth, and cloud momentum—will determine whether it stays ahead or starts playing defense.