Microsoft went into its earnings facing one question: is the vast AI spending working? The numbers said yes, mostly.

Revenue rose 18% to $90bn for the quarter to 30 June, and net income climbed 31% to $35.8bn, the company reported. Microsoft Cloud brought in $59.3bn, up 27%. The shares rose about 2% after hours.

Azure reaccelerated

The figure investors watch is Azure, and it beat. Azure and other cloud services grew 43% year on year, ahead of the 40% expected and up from 40% the quarter before, CNBC reported. For the full financial year, Azure passed $100bn in revenue for the first time.

That acceleration matters because Microsoft has been short of computing power. It has been so stretched for capacity that it has had to ration chips between Azure customers, its own research, and Copilot. Growing 43% through that squeeze is the quarter’s real signal.

The backlog is broadening

The demand is not only from AI labs. Microsoft’s commercial backlog, the revenue it has booked but not yet recognised, jumped 84% year on year to $678bn. It said the quarter’s sequential growth came from customers other than the big model developers.

That matters because of concentration. Microsoft said in January that about 45% of the backlog then was tied to OpenAI. Signs of other customers signing up ease the worry that one partner underwrites the whole story. Paid seats for its Microsoft 365 Copilot assistant passed 30 million, up from 20 million in July.

The bill keeps climbing

The cost of that growth is not falling. Microsoft spent $35.8bn on property and equipment in the quarter alone, more than double the $17bn it spent a year earlier. For the full year, that capital spending reached about $116bn.

Investors have been uneasy about exactly this. The stock is down 19% this year as the spending climbed, and rivals are pouring in similar sums. The relief in the small after-hours pop is that, for now, the revenue is keeping pace with the outlay.

Good, but not great

The profit jump needs an asterisk. Net income grew 31% on paper, but a one-off $3.2bn gain on Microsoft’s stake in the AI lab Anthropic helped lift it. On the company’s own measure that strips out its OpenAI investment swings, profit grew 22%.

Costs also came in lower thanks to Microsoft’s first voluntary retirement programme, partly offset by an Xbox writedown. So the read is mixed. AI cloud demand is clearly real and broadening, but the spending that fuels it keeps rising, and the build-out still needs paying for.

Get the TNW newsletter

Get the most important tech news in your inbox each week.