Microsoft search ad revenue grows 21% as AI investments boost performance

Microsoft Corporation today announced strong growth in its search and advertising business for the second quarter of fiscal year 2025, with revenue excluding traffic acquisition costs increasing by 21% compared to the same period last year, according to the company's earnings release on January 29, 2025.

The significant growth stems from two key factors: increased search volume across Microsoft's platforms and higher revenue generated per search query. According to the financial statements presented, the search and news advertising segment demonstrated consistent quarter-over-quarter improvements throughout fiscal year 2024 and into 2025.

Looking at the historical progression, search advertising growth accelerated from 6% in Q2 FY24 to 21% in the most recent quarter, marking the fourth consecutive quarter of revenue expansion in this segment. The growth trajectory shows steady improvement, with rates of 8% in Q3 FY24, 15% in Q4 FY24, and 18% in Q1 FY25.

Microsoft's overall More Personal Computing segment, which houses the search and advertising business, reported $14.7 billion in revenue for the quarter. While the segment's total revenue remained relatively unchanged year-over-year, the search advertising component emerged as a bright spot, contributing to improved profit margins.

Operating income for the More Personal Computing division grew significantly, rising 32% to reach $3.92 billion. According to the earnings report, this substantial increase in profitability was partially attributed to "improvement in Gaming and Search and news advertising."

The company's strategic investments in artificial intelligence infrastructure appear to be paying dividends in the search business. The search improvements come as Microsoft continues to integrate AI capabilities across its product portfolio, with the company reporting that its AI services grew 157% during the quarter.

Breaking down the financial metrics in constant currency terms, which excludes the impact of foreign exchange fluctuations, search and news advertising revenue grew 20% year-over-year. This indicates that the underlying business momentum remains strong even when accounting for currency effects.

The positive results in search advertising contributed to Microsoft's broader financial performance for the quarter. The company reported total revenue of $69.6 billion, up 12% from the previous year, with net income increasing 10% to $24.1 billion.

Looking ahead, Microsoft faces both opportunities and challenges in the search advertising market. The company must continue investing in AI capabilities while navigating an increasingly competitive landscape. However, the consistent growth trend in search revenue suggests that Microsoft's strategy of enhancing search capabilities with AI technology is resonating with users and advertisers alike.

The financial results underscore Microsoft's growing presence in the digital advertising space, traditionally dominated by other tech giants. With four straight quarters of accelerating growth in search advertising, Microsoft appears to be gaining momentum in this strategic market segment.