But shares in the Redmond, Washington-based company slid by as much as 3.6 percent in after-hours trading amid concerns about the pace of AI monetization.

Microsoft's cloud revenue climbed 26 percent to $49.1 billion, underscoring robust enterprise demand for AI-powered services.

However, the results landed as its Azure cloud computing service was experiencing a shutdown that was affecting customer companies across the globe as well as Microsoft's own websites.

The company's Azure cloud platform posted particularly strong growth with revenue up 40 percent.

Microsoft has continued investing heavily in artificial intelligence, including big investments in data centers and its partnership with ChatGPT-maker OpenAI.

The company said capital expenditures for the quarter reached $34.9 billion, more than what was expected, with big tech companies outdoing one another in announcements of major AI spending.

After renewing its partnership with OpenAI on Tuesday, Microsoft now holds 27 percent in the company, which has quickly grown to become the world's most valuable private firm with a $500 billion valuation.

The deal was well received on Wall Street and saw Microsoft's market capitalization cross the $4 trillion mark in trading on Tuesday.

These AI investments, however, also weighed on profits, with OpenAI-related losses of $3.1 billion impacting net income in the quarter.

Chief Financial Officer Amy Hood said the company "delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share."

Microsoft's productivity software business, including Office 365, generated $33.0 billion in revenue, up 17 percent.

The LinkedIn professional network grew 10 percent while gaming revenue from Xbox increased just one percent.

Microsoft shares have gained more than 10 percent this year, though the stock has underperformed some tech rivals.

The company faces intensifying competition in cloud computing from Amazon Web Services and Google Cloud, while also navigating regulatory scrutiny over its AI partnerships and market dominance.

Australia's competition watchdog this week accused Microsoft of misleading 2.7 million customers into paying for its AI assistant Copilot. The company could face massive fines.

arp/des

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