Microsoft beats estimates and continues to increase spending on AI

• Microsoft's first-quarter earnings beat analysts' estimates as cloud computing continued to grow.
• Capital spending was $20 billion in the first quarter, up from $19 billion in the fourth quarter.
• Microsoft shares rose slightly in after-hours trading.

Microsoft reported better-than-expected first-quarter results after the closing bell on Wednesday and continued to increase its capital spending to invest in AI capabilities.

Capital spending totaled $20 billion, compared with $19 billion in the fiscal fourth quarter and $14 billion in the prior quarter.

Much of the company's spending went toward data centers, graphics processing units and other AI projects. Microsoft plans to accumulate 1.8 million GPUs by the end of the year. The Redmond, Washington-based company plans to triple its data center capacity by July 2025. The company is trying to figure out how to recoup this massive investment.

In the first quarter, Microsoft cloud revenue also increased by 22% year-on-year to $38.9 billion. According to Bloomberg, analysts on average had expected the company's sales to total $38.11 billion.

Shares rose more than 1% in late trading.

Some analysts criticized the company's spending on artificial intelligence, Business Insider previously reported.

“We are expanding our capabilities and attracting new customers by helping them leverage our AI platforms and tools to achieve new growth and operating leverage,” the company's Chairman and CEO Satya Nadella said in the earnings release.

The report follows Microsoft's announcement in August that it would reconfigure how it reports the results of its business units. The Productivity and Business Processes segment includes results from Microsoft 365 Commercial products and cloud services.

Here are some key metrics for the quarter ended Sept. 30 and how they compared to analyst consensus expectations reported by Bloomberg.

• Earnings per share: $3.30 vs. expected $3.11
• Revenue: $65.59 billion vs. expected $64.51 billion
• Operating profit: $30.6 billion versus expected $29.21 billion
• Microsoft Cloud revenue: $38.9 billion vs. expected $38.11 billion

Investors have been tracking AI spending in many of the so-called Magnificant 7 stocks, which includes Microsoft — along with other tech giants like Apple, Amazon, Google parent Alphabet and Nvidia. One concern is that returns on companies' AI investments could fall short of expectations. This is a cause for concern for Microsoft, partly because feedback on the company's Copilot AI is mixed.