Microsoft (NASDAQ:MSFT) delivered first-quarter results that exceeded expectations, driven by powerful growth in its cloud and artificial intelligence businesses, but shares slipped over 2% in premarket trading Thursday as investors reacted to the company’s plans to ramp up spending on AI infrastructure.
The tech giant reported revenue of $77.67 billion, ahead of the $75.32 billion consensus, supported by surging demand from companies using Microsoft’s suite of tools to host and train AI models. Operating income climbed 24% year-over-year to $38 billion, surpassing Wall Street forecasts.
Microsoft’s Azure cloud platform, a key growth driver, expanded 40% from a year ago, exceeding analyst estimates. However, analysts at JPMorgan Chase cautioned that “some subset of investors, perhaps overly hopeful, were anticipating a continuation of super-elevated Azure upside.”
The company’s Productivity and Business Processes segment, which includes Microsoft 365, generated $33.0 billion in revenue, while Personal Computing rose 4% to $13.8 billion.
Looking ahead, Microsoft guided second-quarter revenue between $79.5 billion and $80.6 billion, roughly in line with expectations of $79.7 billion, and forecast Azure revenue growth of 37% on a constant-currency basis.
Despite the strong quarter, investor sentiment cooled after CEO Satya Nadella outlined plans for an aggressive expansion of AI capacity.
Nadella said Microsoft will now “lift its AI capacity by more than 80% in the ongoing fiscal year and double its AI data center presence over the next two years.”
The company warned that annual AI-related spending would likely exceed previous estimates and could still fall short of meeting “sky-high demand.”
Adding to investor caution, Microsoft disclosed a $3.1 billion charge tied to its investments in ChatGPT-maker OpenAI, with some market participants expressing concern about the company’s growing dependence on its AI partner. Earlier this week, OpenAI reached an agreement with Microsoft—its largest backer—that will allow the AI firm to transition into a for-profit structure.
While Microsoft’s fundamentals remain strong, the update suggests a balancing act ahead—sustaining AI growth momentum while managing the capital intensity of its expanding infrastructure footprint.