Strong earnings were not enough to calm market nerves as rising artificial intelligence costs took centre stage in Microsoft’s latest results.
Microsoft reported a sharp rise in profits for the last quarter of 2025, but its aggressive spending on AI and cloud infrastructure triggered a sell-off in after-hours trading. Shares of the software and cloud giant fell about 5% as investors focused on mounting capital expenditure in the intensifying AI race with rivals Google, Amazon and Meta.
Net income surged 60% year-on-year, yet capital expenditure climbed even faster. The company said spending jumped 66% to $37.5 billion, driven largely by large-scale investments in AI and cloud data centres.
Investor attention is also firmly on Microsoft’s relationship with OpenAI, the creator of ChatGPT. Microsoft holds a 27% stake in OpenAI, now valued at about $500 billion, making it the world’s most valuable private company. Some analysts are concerned that OpenAI’s high spending levels could pressure Microsoft’s future earnings.
Microsoft disclosed that about 45% of its remaining cloud commitments come from OpenAI. While OpenAI leads the generative AI market, it needs to raise billions each year to cover rising costs linked to computing infrastructure and top engineering talent. Analysts warned that a meaningful share of Microsoft’s expected revenue in coming quarters is tied to a partner that is financially stretched.
For the three months ended December 31, Microsoft posted net income of $38.5 billion on revenue of $81.3 billion. This compares with $24.1 billion in profit on revenue of $69.6 billion in the same period a year earlier. Analysts noted that part of the profit growth was supported by gains from Microsoft’s investment in OpenAI.
Azure and other cloud services, the company’s most closely watched business, recorded revenue growth of 39%, broadly meeting expectations. Microsoft said demand for cloud services continues to outstrip available supply.
“With this earnings result, “Microsoft didn’t declare victory on AI-but it made a credible case that the spending has a path to payback,” said a principal analyst at a market research firm.
LinkedIn revenue rose 11%, while revenue from Xbox gaming content and services fell 5%. Xbox hardware sales dropped sharply by 32%.
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