In what would have typically been a strong quarter for Microsoft, investors remain wary, resulting in a 6% drop in after-hours trading. Despite reporting a 60% YoY increase in profits, driven by $81.3 billion in revenue, Microsoft’s heavy reliance on AI capital investments is raising eyebrows. CEO Satya Nadella and CFO Amy Hood faced queries about the liabilities tied to AI ventures like OpenAI, responsible for 45% of the company’s $625 billion backlog.

Last fall, OpenAI’s transition to a public benefit corporation revealed a $250 billion Azure service contract with Microsoft, which involved relinquishing primary provider rights. Microsoft’s relationship with rival Anthropic, which committed to a $30 billion Azure deal, further reflects its deep AI investments.

Hood reassured stakeholders, highlighting that the remaining 55% of Microsoft’s performance obligations span a diverse and expanding customer base. However, much of this concern stems from the company’s substantial expenditures. Within the quarter, $37.5 billion was spent on assets, predominantly GPUs and CPUs, which carry fast depreciation rates.

Although Hood emphasized Microsoft’s capacity to deliver on its Azure revenue guidance, the industry’s apprehension over unproven AI startups remains a factor. Microsoft expects continued revenue growth in Q3, while forecasting reduced capital expenditure as infrastructure projects stabilize.

Investors must reckon with Microsoft’s bold AI strategy, balancing impressive performance metrics against potential long-term risks.