Microsoft Corp said on Wednesday that its profit for the October-December quarter grew 10% from the same time last year as it works to capitalise on the huge amounts of money it has spent to advance its artificial intelligence technology.

But while its overall profits and revenue beat Wall Street expectations, it slightly missed projections for its closely watched cloud computing business, a centrepiece of its AI efforts.

The company reported net income for the quarter of 24.1 billion dollars (£19.4 billion), or 3.23 dollars per share, beating Wall Street expectations of 3.11 dollars per share. The Redmond, Washington-based software maker posted revenue of 69.6 billion dollars (£56 billion) in the quarter, up 12% from the previous year, also beating expectations.

Analysts polled by FactSet Research expected Microsoft to generate revenue of 68.87 billion dollars (£55.4 billion) in the last three months of the year, and currently project revenue of 69.81 billion dollars (£56.2 billion) for the January-March quarter.

Sales from Microsoft’s cloud-focused business segment grew 19% from the same time last year to 25.5 billion dollars (£20.5 billion), which was less than the 25.83 billion dollars (£20.79 billion) forecast by FactSet analysts.

Microsoft’s productivity business segment, which includes its Office suite of email and other workplace products, grew 14% to 29.4 billion dollars (£23.66 billion).

Its personal computing business, led by its Windows division, remained steady at 14.7 billion dollars (£11.83 billion).

Microsoft shares dropped slightly in after-hours trading on Wednesday but were still higher than Monday, when the tech giant was hit by a broader tech stock sale caused by a frenzy over the new ChatGPT competitor developed by Chinese tech startup DeepSeek.

Microsoft is a close partner of ChatGPT maker OpenAI and also sells its own AI chatbot services, branded as Copilot.

Part of what drove the Wall Street panic this week was concern that the startup’s claims that it was catching up to US tech titans on a fraction of their budget.

Microsoft chief executive Satya Nadella downplayed those concerns on an investor call on Wednesday, saying “DeepSeek had some real innovations” and it is good to have efficiency gains and lower prices in AI development because it “means people can consume more and there’ll be more apps written”.

Microsoft also added DeepSeek’s latest AI model to those available on its Azure computing platform on Wednesday.

Building and operating AI systems is costly, and Microsoft has said it plans to spend 80 billion dollars (£64.38 billion) this year as it expands its global network of energy-hungry computing centres and supplies them with specialised chips to train and run AI models.

“We have more than doubled our overall data centre capacity in the last three years and we have added more capacity last year than any other year in our history,” Mr Nadella said.