Microsoft shares fell 3.8% on Thursday, even though the company beat earnings expectations and reported strong Azure cloud growth. Investors were more concerned about the company’s much higher capital spending plans, which cut into free cash flow and raised questions about future returns.

Microsoft reported adjusted earnings per share and revenue above expectations. Azure revenue also exceeded estimates, with projected growth remaining strong.

Despite strong cloud growth, rising investment costs concern investors. Capital spending rose sharply, reducing free cash flow and increasing unease over the pace of spending. Management now expects full-year investment to be significantly above analyst forecasts, adding to concerns.

KeyBanc kept its Overweight rating and $600 price target, saying that faster revenue growth shows the company’s investments are paying off. However, they also noted that investors want clearer evidence that spending $190 billion a year on infrastructure is driving sufficient revenue growth.

Microsoft now has 20 million paid M365 Copilot AI users, up from last quarter. Fourth-quarter revenue guidance is slightly below analyst expectations.

Microsoft shares are down this year amid concerns that new AI models could disrupt core businesses before Copilot revenue ramps up.