Microsoft reported a 31 percent increase in quarterly profit alongside a substantial rise in spending on artificial intelligence (AI) infrastructure, underscoring the company’s commitment to scaling its AI capabilities despite investor concerns about the cost. For the three months ending in June, Microsoft’s profit reached $35.8 billion on revenue of $90 billion, marking an 18 percent rise from the previous year and surpassing Wall Street expectations.

The technology giant disclosed that capital expenditures, including investments in data centers, surged 69 percent year-over-year to $41 billion for the quarter. For its full fiscal year 2026, which also ended in June, Microsoft’s total spending on capital projects hit $145.3 billion. The company anticipates continuing this upward trajectory, projecting about $175 billion in AI infrastructure expenditures over the 2026 calendar year and more than $50 billion in the current quarter.

Much of Microsoft’s revenue growth was driven by its cloud computing platform, Azure, which reported a 43 percent increase—outpacing analyst estimates of around 40 percent. Azure’s revenue surpassed $100 billion for the first time during the fiscal year, reflecting strong demand from enterprises seeking AI-powered computing resources. CEO Satya Nadella emphasized that this milestone "reflects the confidence customers are placing in us to power their AI transformation."

To support this demand, Microsoft added 31 new data centers in the quarter, bringing the total to 88 data centers opened so far this year. Despite this expansion, the company noted that customer demand continues to exceed available infrastructure capacity.

Microsoft’s commercial backlog—representing contracted future sales—rose 8 percent to $678 billion, driven primarily by customers outside of AI research labs like OpenAI. Microsoft maintains a close partnership with OpenAI, having acquired a stake valued at approximately $135 billion last year and securing access to OpenAI’s technology through 2032.

The company’s productivity software business, encompassing commercial subscriptions to applications such as Excel, Teams, Word, and its AI-powered assistant Copilot, grew revenue by 14 percent to $37.8 billion. Copilot’s user base increased from over 20 million to more than 30 million paying customers in a single quarter.

Conversely, Microsoft’s personal computing division experienced a 4 percent revenue decline to $12.9 billion, attributed to reduced demand for PCs and higher component costs. The Xbox gaming division faced particular challenges, with a 10 percent drop in quarterly revenue. In response, Microsoft cut approximately 20 percent of its Xbox workforce in July and shuttered several game studios as part of broader job reductions totaling about 4,800 positions.

Microsoft’s robust quarterly results triggered a more than 7 percent increase in its stock price during after-hours trading on Wednesday, offering some reassurance to investors concerned about the long-term profitability of expensive AI investments. This contrasts sharply with recent performance from peers like Alphabet, which despite reporting a quadrupling of quarterly profit, saw its shares decline amid investor skepticism over the sustainability of escalating AI expenditures.

Analysts caution that although the market initially gave big technology companies wide latitude to invest heavily in AI on the expectation that those investments would eventually yield significant returns, that patience is now conditional on continued revenue growth and profitability.