Microsoft delivered a solid earnings report on Wednesday with $81.3 billion in revenue for the quarter (up 17%), net income profits of $38.3 billion (up 21%), and a record-breaking Microsoft cloud revenue of over $50 billion. 

But the stock was getting pounded on Thursday as investors worried about how much the tech giant was spending to build out its cloud and questioned whether that investment would pay off. Microsoft CEO Satya Nadella says the answer to that question is yes  — and spent considerable time on the earnings call trying to make that point.

Microsoft has spent almost as much on capital expenditures in the first half of its current fiscal year as it did in all of the previous year. And the numbers truly are enormous: Microsoft spent $88.2 billion on capital expenditures last year and has spent $72.4 billion so far this year. 

Much of that spend is to serve AI to enterprises and major AI labs, especially OpenAI, as well as Anthropic. The big question on investors’ minds is: Will the spending turn into more use and ultimately profits?  

Investors are scared that Microsoft’s main enterprise cloud product, Azure, and its Microsoft 365 apps didn’t grow as fast as they wanted.

“The fact that BOTH Azure and the M365 segments fell a bit short is the key negative we’re hearing,” Wall Street analyst for UBS, Karl Keirstead, wrote in his research note on Thursday. (Keirstead isn’t worried about it, though, and recommends buying the stock.)

Still, a few months ago, news reports circulated that people didn’t really want to use Microsoft’s AI, despite Copilot being weaved into all kinds of Microsoft products.  

Nadella spent much of his time during the earnings call engaged in what is best described as AI use PR. Despite his pitch, some of the numbers he gave were pretty squishy.  

For instance, Nadella said daily users of its consumer Copilot AI products had grown “nearly 3x year-over-year.” This refers to AI chats, the news feed, search, browsing, shopping, and “integrations into the operating system.”  

As to how many actual users that represents, he didn’t say. (We’ve reached out to Microsoft and asked.)

Last year, in its annual report, the company said it surpassed 100 million monthly active Copilot users, but that counted both commercial users and consumers.  

He was more up front with Microsoft’s coding AI, GitHub Copilot, saying it now has 4.7 million paid subscribers, up 75% year-over-year. That appears to be a healthy business. Last year, in its annual report, Microsoft said that GitHub Copilot had 20 million users, a figure that includes those opting for the free tier.  

He also said Microsoft 365 Copilot now has 15 million paid seats from companies buying it for their employees. This is out of a base of 450 million paid seats, the company said.

And Nadella called out the growth of Dragon Copilot, Microsoft’s healthcare AI agent for medical professionals (a competitor to superhot startup Harvey). He said this product is available to 100,000 medical providers and was used to document 21 million patient encounters over the quarter, up threefold year-over-year. 

Will the billions spent on data centers be worth it? Nadella obviously thinks so. He and CFO Amy Hood said on the earnings call that demand for AI services across products far outstrips data center supply, so all of the new equipment is essentially booked to capacity for its lifespan.