Microsoft (NASDAQ:MSFT) reported second-quarter earnings that beat analyst expectations, but shares fell sharply in premarket U.S. trading as growth decelerated at the company’s key cloud-computing unit.

The tech giant posted adjusted earnings per share of $4.14, surpassing the analyst estimate of $3.93, while revenue reached $81.3 billion, above expectations of $80.23 billion and up 17% versus a year ago.

Revenue at Microsoft’s Azure cloud division expanded by 39% only narrowly topped analyst expectations of 38.8%, but was slightly lower than prior quarter.

Further pressuring the shares, Microsoft’s capital spending rose to $37.5 billion in its fiscal second quarter, up nearly 66% year on year and above expectations of $34.31 billion.

On the other hand, Microsoft’s cloud business continued its strong performance, with Microsoft Cloud revenue exceeding $50 billion for the quarter. Operating income rose 21% to $38.3 billion compared to the same period last year.

“We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises,” said Satya Nadella, chairman and chief executive officer of Microsoft.

The company’s net income on a GAAP basis increased 60% to $38.5 billion, while non-GAAP net income rose 23% to $30.9 billion. Microsoft noted that non-GAAP results exclude the impact from investments in OpenAI.

“While we believe the stock reaction is due to Azure growth & elevated Capex, we view the second quarter as fundamentally strong beneath the surface,” analysts at Truist said in a note to clients.