Microsoft reported strong quarterly earnings as its heavy spending on artificial intelligence (AI) infrastructure started showing results, with faster growth in its Azure cloud business. Microsoft's $41 billion AI investment boosts Azure growth, beats earnings estimates and lifts investor confidence as cloud demand continues to rise. (Photographer: David Paul Morris/Bloomberg) (Bloomberg)Azure, Microsoft's cloud computing platform, recorded 43% revenue growth in the latest quarter. This was the fastest growth for Azure in about four years and was higher than Wall Street's expectation of around 40%. Azure's strong performance is important because investors closely watch its growth to judge whether Microsoft's huge AI investments are actually bringing in more revenue.Microsoft spent $41 billion on capital expenditures during the quarter, including building AI data centers and buying computing equipment. This was about a 70% increase from the same period last year. Capital expenditure means money spent on long-term assets such as data centers, servers and other infrastructure needed to support AI and cloud services. The company has been investing at a record pace to increase computing capacity because demand for AI services continues to grow.Microsoft AI spending pays offMany investors had questioned whether Microsoft and other Big Tech companies would earn enough money to justify their massive AI spending. This quarter gave the strongest sign so far that Microsoft's AI investments are beginning to pay off because Azure growth accelerated beyond expectations. Microsoft generated $90 billion in revenue during the quarter, an increase of 18% from a year earlier, beating analysts' expectations of around $87.6-$87.7 billion.Microsoft earnings beat expectationsThe company posted adjusted earnings of $4.74 per share, higher than analysts' estimate of $4.25 per share, according to Yahoo Finance. Microsoft reported quarterly profit of $35.8 billion, up 31.6% compared with a year earlier. Operating income increased to $40.6 billion, showing stronger profitability during the quarter.Also read: Mercedes recalls over 310,000 US vehicles as weak China sales hit forecastMicrosoft's total capital spending for its 2026 fiscal year reached $145.3 billion, highlighting the company's continued investment in AI infrastructure. The company said demand for its cloud services is still greater than the number of data centers currently available, making further investment necessary, according to The New York Times.Azure growth to speed upMicrosoft expects Azure to grow even faster next quarter, reaching about 45% growth, while capital spending is expected to increase to more than $50 billion. Microsoft said that new AI computing capacity is being used almost immediately because customer demand remains very strong.Microsoft Chief Financial Officer Amy Hood said the company quickly earns money from improvements in efficiency. "When we can make efficiency gains, they are quickly monetized in quarter," CFO Amy Hood said, via Yahoo Finance.Microsoft stock jumps after resultsInvestors reacted positively to Microsoft's earnings. The company's shares rose around 3% in late trading after initially closing down 0.7% during the regular trading session. Yahoo Finance also reported that Microsoft's stock jumped about 9% in after-hours trading as investors welcomed the strong Azure growth and earnings beat. The positive reaction was very different from Alphabet's recent earnings report. Although Google Cloud revenue surged 82%, Alphabet's stock fell about 7% after the company increased its future AI spending plans.Investors appeared more comfortable with Microsoft's AI spending because the company showed stronger evidence that the investments are already leading to higher revenue growth. Microsoft shares had been under pressure since January because investors worried whether the company's huge AI spending would eventually generate enough profits.Much of Microsoft's cloud demand comes from its partnership with OpenAI, the company behind ChatGPT. Microsoft and OpenAI changed their partnership late last year after OpenAI became a for-profit company and Microsoft received a stake valued at around $135 billion, according to The New York Times. Under the revised agreement, Microsoft will continue to have access to OpenAI's technology through 2032.Microsoft 365 and Copilot grow fastMicrosoft's commercial business, which includes Microsoft 365 products such as Excel, Teams, Word and the AI assistant Copilot, reported 14% sales growth to $37.8 billion. Microsoft's personal computing business recorded $12.9 billion in sales, a 4% decline from a year earlier.Microsoft CEO Satya Nadella highlighted the company's AI progress. “This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their A.I. transformation,” Satya Nadella, Microsoft’s chief executive, said in a statement, via The New York Times. To help fund its AI expansion, Microsoft has also been reducing costs in other parts of the business.In July, Microsoft cut about 20% of its Xbox workforce as part of around 4,800 job cuts and also shut down several game studios. Overall, Microsoft's latest earnings suggest that its record AI spending is beginning to produce stronger cloud growth, higher revenue and rising profits, easing some investor concerns about whether its AI investments will pay off.