Shares in the cloud and software giant sank about five 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 said that capital expenditures, which largely consist of the massive build-out for AI and cloud infrastructure, grew by 66 percent to $37.5 billion.

Investors are also looking at Microsoft's ties to OpenAI, the company behind ChatGPT.

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, but which some feel is overspending.

Analysts expressed worry that a sizeable chunk of Microsoft's expected revenue over the coming quarters was from a financially overstretched OpenAI.

Microsoft said about 45 percent of its remaining cloud commitments are from OpenAI.

OpenAI is the leader in generative AI technology, but is required to raise billions every year to meet its huge expenses for computing and top engineering talent.

Beating expectations, Microsoft 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 booked from Microsoft's investment in OpenAI.

Azure and other cloud services, Microsoft's most closely watched segment, saw revenue surge 39 percent, roughly in line with expectations.

The company said demand for cloud services continues to exceed available supply.

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 LinkedIn professional network saw revenue grow 11 percent while revenue from Xbox gaming content and services decreased five percent. Hardware sales for Xbox were down 32 percent.