Microsoft (MSFT) reported its third quarter results after the bell on Wednesday, beating analysts’ expectations on the top and bottom lines, and said its AI business now has a $37 billion annual revenue run rate, up 123% year over year.

Microsoft stock fell more than 1% on the news after initially climbing higher.

Ahead of earnings, Microsoft provided Wall Street with an update on its highest-profile AI relationship on Monday, saying that it reworked its agreement with OpenAI (OPAI.PVT) and will no longer have to make revenue-sharing payments to the AI startup, while OpenAI will continue making payments to Microsoft.

For the quarter, Microsoft saw earnings per share (EPS) of $4.27 on revenue of $82.89 billion. Wall Street was anticipating EPS of $4.04 on revenue of $81.46 billion, based on Bloomberg analyst consensus estimates.

Microsoft said its Copilot service now exceeds 20 million paid seats, up from the 15 million the company reported in Q2.

It also said it has remaining performance obligations of $627 billion, up 99% year-over-year, with a weighted-average duration of 2.5 years. Excluding OpenAI, RPO was up about 26%, which is more in line with season averages.

On capital expenditures, Microsoft said it spent $31.9 billion, with two-thirds of that going to assets, including GPUs and CPUs.

Microsoft saw EPS of $3.46 and revenue of $70.06 billion in the same period last year.

The company’s Productivity and Business Processes segment generated $34.7 billion, slightly above the projected $34.48 billion, while its Intelligent Cloud business reported revenue of $34.68 billion. Wall Street was looking for $34.31 billion.

But the tech giant has also lost exclusive access to OpenAI’s intellectual property and AI models. Though it will still have access, OpenAI can also share its data with other companies. OpenAI will also be able to serve its products across cloud partners, rather than just on Azure.

On the PC front, Microsoft’s More Personal Computing segment saw sales of $13.2 billion compared to expectations of $12.64 billion.

The PC industry is dealing with the impact of the global memory shortage caused by the worldwide data center build-out.

That’s forcing some manufacturers to raise PC prices or eliminate certain low-cost models, cutting into overall sales. According to the International Data Corporation, global PC shipments are expected to fall 11.3% this year.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on X at @DanielHowley.

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