Microsoft reports 10% quarterly profit growth as it works to show AI investments paying off

Microsoft said Wednesday that its profit for the October-December quarter grew 10% as it works to capitalize on the huge amounts of money it has spent to advance its artificial intelligence technology.

But while its overall profits and revenue beat Wall Street expectations, it slightly missed projections for its closely-watched cloud computing business, a centerpiece of its AI efforts.

The company reported net income for the quarter of $24.1 billion, or $3.23 per share, beating Wall Street expectations of $3.11 per share. The Redmond, Washington-based software maker posted revenue of $69.6 billion in the quarter, up 12% from the previous year, also beating expectations.

Analysts polled by FactSet Research expected Microsoft to generate revenue of $68.87 billion in the last three months of the year.

Sales from Microsoft's cloud-focused business segment that includes its flagship Azure computing platform grew 19% from the same time last year to $25.5 billion, which was less than the $25.83 billion forecast by FactSet analysts.

Microsoft's productivity business segment, which includes its Office suite of email and other workplace products, grew 14% to $29.4 billion.

Its personal computing business, led by its Windows division, remained steady at $14.7 billion, with a drop in consumer device sales offset by growth in advertising revenue tied to the Bing search engine.

Microsoft shares dropped 5% in after-hours trading Wednesday but were still higher than Monday, when the tech giant was hit by a broader tech stock sale caused by a frenzy over the new ChatGPT competitor developed by Chinese tech startup DeepSeek.

Microsoft is a close partner of ChatGPT maker OpenAI and also sells its own AI chatbot services, branded as Copilot. Part of what drove the Wall Street panic this week was concern over the startup's claims that it was catching up to U.S. tech titans on a fraction of their budget.

Microsoft CEO Satya Nadella downplayed those concerns on an investor call Wednesday, saying "DeepSeek had some real innovations" and it is good to have efficiency gains and lower prices in AI development because it "means people can consume more and there'll be more apps written."

Microsoft also added DeepSeek's latest AI model to those available on its Azure computing platform Wednesday.

Building and operating AI systems is costly, and Microsoft has said it plans to spend $80 billion this year as it expands its global network of energy-hungry computing centers and supplies them with specialized chips to train and run AI models.

"We have more than doubled our overall data center capacity in the last three years and we have added more capacity last year than any other year in our history," Nadella said.