But shares in the Redmond, Washington-based company slid by as much as 3.6 percent in after-hours trading amid concerns about the pace of AI monetization.
Microsoft's cloud revenue climbed 26 percent to $49.1 billion, underscoring robust enterprise demand for AI-powered services.
However, the results landed as its Azure cloud computing service was experiencing a shutdown that was affecting customer companies across the globe as well as Microsoft's own websites.
The company's Azure cloud platform posted particularly strong growth with revenue up 40 percent.
Microsoft has continued investing heavily in artificial intelligence, including big investments in data centers and its partnership with ChatGPT-maker OpenAI.
The company said capital expenditures for the quarter reached $34.9 billion, more than what was expected, with big tech companies outdoing one another in announcements of major AI spending.
After renewing its partnership with OpenAI on Tuesday, Microsoft now holds 27 percent in the company, which has quickly grown to become the world's most valuable private firm with a $500 billion valuation.
The deal was well received on Wall Street and saw Microsoft's market capitalization cross the $4 trillion mark in trading on Tuesday.
These AI investments, however, also weighed on profits, with OpenAI-related losses of $3.1 billion impacting net income in the quarter.
Chief Financial Officer Amy Hood said the company "delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share."
Microsoft's productivity software business, including Office 365, generated $33.0 billion in revenue, up 17 percent.
The LinkedIn professional network grew 10 percent while gaming revenue from Xbox increased just one percent.
Microsoft shares have gained more than 10 percent this year, though the stock has underperformed some tech rivals.
The company faces intensifying competition in cloud computing from Amazon Web Services and Google Cloud, while also navigating regulatory scrutiny over its AI partnerships and market dominance.
Australia's competition watchdog this week accused Microsoft of misleading 2.7 million customers into paying for its AI assistant Copilot. The company could face massive fines.
Microsoft cloud customers face widespread disruptions
Washington (AFP) Oct 29, 2025 -
Microsoft cloud customers experienced widespread service disruptions Wednesday after the company said "inadvertent configuration change" affected its widely used Azure service.
The bug, which began at 1600 GMT, affected Azure Front Door, the company's content delivery network service that is used by enterprise customers to optimize application performance.
In an update at 2230 GMT, Microsoft said it had finished deploying its "last known good" configuration and that some users could encounter "intermittent failures" as the system recovers.
Microsoft said it was seeing strong signs of improvement across affected regions and that it expected Azure operations to be back to normal by 2320 GMT.
The crowdsourced error reporting site DownDetector showed problems across a wide spectrum of customer-facing websites, including Xbox, Alaska Airlines and retailer Costco.
Configuration changes are routine in technology operations -- companies make them constantly to improve services, add features, or fix problems.
However, even a small error in configuration can cascade through highly interconnected systems and spread almost instantly to cloud customers worldwide.
"We are currently recovering nodes and re-routing traffic through healthy nodes across our fleet," Microsoft said in the update.
"This recovery effort involves reloading configurations and rebalancing traffic across a large number of nodes to restore full operational scale."
Last week, a different outage in Amazon's crucial cloud network, AWS, saw popular internet services ranging from streaming platforms to messaging services to banking taken offline for hours.
AWS leads the cloud computing market, followed closely by Microsoft's Azure, with Google Cloud in third place.
Businesses, governments and consumers worldwide rely on their infrastructure for online activities.
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