Microsoft gave investors a reason to cheer after the closing bell on Wednesday.
The software giant reported quarterly earnings that came in ahead of Wall Street expectations, sending shares up roughly 7% in after-hours trading. Adjusted profit came to $4.74 per share, compared with the $4.24 analysts had projected, according to LSEG. Revenue hit $90.01 billion, beating the $87.62 billion estimate.
Net income jumped to $35.77 billion from $27.23 billion a year earlier. That number got a boost from a $3.2 billion gain on Microsoft's investment in Anthropic, the AI company behind the Claude chatbot.
The strong report comes at a good time for Microsoft shareholders. Year to date in 2026, Microsoft shares had fallen 19%, while the S&P 500 index rose 7%. A beat like this reminds the market that big tech companies can still grow even when their stock prices are getting hammered.
The real engine under the hood is still Azure.
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Revenue from Microsoft's Intelligent Cloud segment, which includes Azure, hit $39.31 billion, up 31.6% from last year. Azure itself grew 43% on a constant-currency basis. The company expects that growth to accelerate to 45% in the current quarter.
Azure has become a huge business. Microsoft said it generated $100 billion in revenue over the full 2026 fiscal year, up 41%. But keeping that growth going requires a lot of money.
Microsoft spent $41 billion on capital expenditures and finance leases in the quarter, up 69% from a year ago. CFO Amy Hood said the company sees "demand signals across our portfolio" and plans to spend even more in fiscal 2027. One big reason for the jump: Microsoft extended the useful life of its office and data center buildings from 15 years to 25 years, which adds roughly $175 billion to its reported capital spending over time.
The catch is that free cash flow fell 23% to $19.64 billion. The CFO, Amy Hood, stated that the company anticipates achieving positive free cash flow by fiscal 2027.
Microsoft's aggressive capital spending has drawn scrutiny. The $41 billion quarterly expenditure, up 69% year over year, is a bet on sustained AI demand. The company's $678 billion in commercial performance obligations provides a cushion, though Deutsche Bank analysts flagged "some concentration risk" with Microsoft's OpenAI relationship in a note last week, even as they recommended buying the stock.
For investors, the big picture is straightforward. Microsoft's core business is healthy. Its cloud customers are not slowing down, and AI is driving demand for computing power that only companies like Microsoft can provide.
But the stock is still down sharply for the year, and the market is watching how the company balances its resources. In January, Microsoft disclosed that roughly 45% of its $625 billion in outstanding commercial performance obligations involved OpenAI. (The current figure is $678 billion, but the 45% concentration was stated for the earlier amount.)
Other parts of the business are mixed. The More Personal Computing segment, which includes Windows and Xbox, saw revenue fall 4.4%. PC shipments dropped 4.2% according to Gartner, and Xbox revenue fell 10%.
Microsoft added over 30 million paid seats for its Microsoft 365 Copilot work assistant, and according to CEO Satya Nadella, numerous enterprise clients bought millions of seats for the premium E7 productivity suite. GitHub Copilot now has 50 million users. But device and Windows license sales to PC makers slid 7%.
So here is the bottom line for your money. Microsoft is spending like crazy on AI infrastructure, and that spending is paying off in cloud growth. The earnings beat shows the strategy is working for now.
The question is whether the stock's 19% drop was an overreaction to those spending plans - or a sign that investors are worried about a slowdown that has not shown up yet. This quarter suggests the first answer, but the next few quarters will tell the real story.
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