Shares in the cloud and software giant sank about four percent in after-hours trading, with investors keeping a close eye on capital expenditures as the company spends heavily in the AI race against rivals Google, Amazon and Meta.

The company posted net income of $38.5 billion on revenue of $81.3 billion for the three months ending December 31.

This was up from $24.1 billion in profit on $69.6 billion in revenue a year earlier.

Analysts said that the net income figure was boosted by gains from Microsoft's investment in OpenAI, the maker of ChatGPT.

With this earnings result, "Microsoft didn't declare victory on AI-but it made a credible case that the spending has a path to payback," said Emarketer principal analyst Jeremy Goldman.

The company said that capital expenditures, which largely consist of the massive buildout for AI and cloud infrastructure, grew by 66 percent to $37.5 billion.

Microsoft has continued to invest heavily in AI, including its big investments in data centers and its partnership with OpenAI.

Microsoft now holds a 27 percent stake in OpenAI, which has quickly grown to become the world's most valuable private company with a $500 billion valuation.

Azure and other cloud services saw revenue surge 39 percent, while Microsoft 365 commercial cloud revenue rose 17 percent, both roughly in line with analyst expectations.

The LinkedIn professional network saw revenue grow 11 percent while revenue from Xbox gaming service decreased five percent.