Microsoft beats Wall Street expectations with big help from its cloud business, but warns of slower growth in second quarter

Microsoft beat Wall Street estimates for its latest quarter with the help of its all-important cloud services business.

The tech giant on Wednesday reported $65.6 billion in revenue, up 16% from this time last year, beating analyst predictions of $64.57 billion. Meanwhile, net profits were $24.67 billion, up 11% from the $22.29 billion from the year-ago quarter.

That translated into an earnings per share of $3.30, exceeding the $3.10 that analysts had expected.

The better-than-expected results helped to lift Microsoft’s stock by 1.3% in after-hours trading to $438.28.

Microsoft CEO Satya Nadella attributed the growth partly to artificial intelligence and its impact in quickly transforming workplaces.

“We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage,” Nadella said in a statement.

Executives called the results a “solid start” to the new fiscal year. Nadella said the AI business is on track to be the fastest business segment in Microsoft history to surpass a $10 billion annual revenue run rate.

And the company’s relationship with OpenAI, in which it is a major investor, is paying off, Nadella said, reporting that use of Azure OpenAI has doubled in the past six months. Amid reports about the increasingly complex and competitive nature of the partnership, the Microsoft CEO today characterized the relationship as “super beneficial.”

“We feel very, very good about our investment stake in OpenAI,” Nadella said, adding that when it comes to innovation, “we need to push each other to do more.”

But a more conservative outlook for Azure, with sales growth falling to 31% to 32% for the current quarter from 33% in the just-reported one, worried investors. CFO Amy Hood said the guidance on slower growth is the result of constraints in data center capacity as customer demand for AI services increases.

Microsoft anticipates overall second-quarter revenue to be between $68.1 billion and $69.1 billion, or an increase of 10.6%.

For the first fiscal quarter, Microsoft reported $38.9 billion in revenue from cloud services, up 22% from the same period a year earlier. Cloud services is a closely watched metric because corporations often use cloud providers to power their AI data crunching. In the latest fiscal year, it accounted for nearly 43% of Microsoft’s annual revenue.

Microsoft’s intelligent cloud revenue was $24.1 billion, up 20% from last year. Intelligent cloud includes Azure, Windows Server, and enterprise services. Meanwhile, Azure server products and cloud services revenue grew 23%, while other cloud services revenue grew 33%.

Sales in Microsoft’s productivity and business processes unit, which includes Microsoft 365 products and LinkedIn, reached $28.3 billion, up 12%.

Other personal computing revenue increased 17% to $13.2 billion, including Xbox content and services revenue, which was up 61% mostly thanks to the company’s more than $68 billion acquisition of video-game maker Activision.

This story was originally featured on Fortune.com