Microsoft (NASDAQ:MSFT) reported quarterly results on Wednesday that exceeded Wall Street expectations, driven by continued strength in cloud computing and growing returns from its artificial intelligence investments.
Despite the earnings beat, shares slipped about 1.5% in after-hours trading, as investors viewed the overall performance as underwhelming, particularly with Azure growth coming in line with forecasts rather than exceeding them.
Revenue and Azure growth meet but do not exceed expectations
The company posted revenue of $82.9 billion for the quarter, ahead of the $81.29 billion consensus estimate. However, the market reaction remained muted, with the stock falling more than 1% in extended trading.
Revenue from Azure, Microsoft’s cloud platform, rose 40% during the January–March period, matching expectations compiled by Visible Alpha.
Overall Microsoft Cloud revenue reached $54.5 billion, representing a 29% increase year over year, or 25% in constant currency.
AI investments continue to scale despite cost pressures
The results may help ease concerns that slower adoption of Copilot 365 and reliance on partners like OpenAI could erode Microsoft’s early leadership in AI. They also reinforce the company’s ongoing commitment to large-scale infrastructure spending, even as it pressures cash flow.
Capital expenditures rose 49% year over year to $31.9 billion in the fiscal third quarter, following $37.5 billion in the prior quarter. This comes as major cloud providers are expected to collectively invest more than $600 billion in AI infrastructure this year.
CEO Satya Nadella emphasized the company’s long-term strategy, stating, “We are focused on delivering cloud and AI infrastructure and solutions that empower every business to eval-max their outcomes in the agentic computing era.” He added, “Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year.”
Profitability and partnerships support outlook
Microsoft reported diluted earnings per share of $4.27 for the quarter, exceeding the analyst estimate of $4.05 by $0.22.
The company’s performance also supports its continued expansion of data center capacity, even as these investments weigh on near-term cash flows.
Microsoft has been expanding its AI ecosystem through partnerships, including incorporating technology from Anthropic into its cloud offerings and products such as Copilot, reflecting rising demand for advanced AI models.
Earlier in the week, Microsoft also revised its agreement with OpenAI, securing its 20% share of the startup’s revenue through 2030 regardless of future technological developments.
Outlook remains tied to AI execution and cloud demand
While the company continues to show strong growth in both cloud and AI segments, investor sentiment suggests expectations remain high. Azure’s in-line performance and elevated capital spending highlight the balance Microsoft must strike between scaling infrastructure and maintaining profitability as competition in AI intensifies.