Microsoft exceeded analysts’ expectations for fourth-quarter revenue and profit, buoyed by the success of its cloud business leveraging new artificial intelligence (AI) technology.

However, costs rose substantially compared to the previous quarter due to the establishment of new data centers to support AI operations, resulting in a minor 1% decline in its shares during after-hours trading.

Wall Street is closely observing the potential benefits of generative AI services for Microsoft, which gained an early advantage through investments in OpenAI, the proprietor of the renowned ChatGPT service.

Incorporating AI into its range of products, Microsoft offers the $30-a-month “Copilot” service for Microsoft 365, which promptly summarizes a day’s worth of emails. Additionally, the company aims to provide cloud computing services to other enterprises for building AI-related offerings.

While Microsoft’s Azure sales growth outperformed market expectations, the company’s quarterly capital expenditures reached their highest single-quarter total since at least its fiscal 2016. This heavy expenditure on AI services precedes commensurate revenue growth.

During the fiscal fourth quarter ending June 30, revenue surged to $56.2 billion, surpassing the consensus estimate of $55.5 billion by Refinitiv. Net income stood at $2.69 per share, exceeding estimates of $2.55 per share.

The Intelligent Cloud unit, housing the Azure cloud computing platform, achieved revenue of $24 billion, outperforming the expected $23.8 billion.

Azure’s revenue saw a remarkable 26% rise, exceeding the estimated 25.2% growth provided by Visible Alpha. Although the absolute revenue figure for Azure remains undisclosed, it is considered the most promising segment of Microsoft’s business with the potential to capitalize on the burgeoning interest in AI.

Amidst a decline in the PC business, which saw sales, including the Windows operating system, drop to $13.9 billion, Microsoft’s segment encompassing the LinkedIn social network and Office productivity software flourished, generating $18.3 billion in revenue, surpassing the estimated $18.1 billion.

Capital expenditures surged to $10.7 billion from $7.8 billion in the fiscal third quarter, as the company had previously informed investors of the increased spending required for building AI-focused data centers.

“Our focus remains on leading the new AI platform shift,” declared Chief Executive Satya Nadella while announcing the results.

Microsoft has already begun integrating AI functionality across its diverse product portfolio, including Azure, Microsoft 365, GitHub, and various developer tools. This strategic move positions the company at the forefront of the AI revolution.