Microsoft beats quarterly cloud estimates as Azure revenue grows 48%

Microsoft MSFT-Q surpassed expectations for quarterly cloud revenue on Wednesday, signalling that its hefty AI investments were paying off at a time Wall Street grows increasingly wary of Big Tech’s debt-fuelled spending.

Revenue at Microsoft’s Azure cloud computing business grew 48 per cent to US$33.17-billion in the first quarter ended September, topping Visible Alpha’s estimates of US$32.84-billion. Azure revenue came in at US$29.4-billion in the prior quarter.

Shares of Redmond, Wash.-based Microsoft were up about 4 per cent in extended trading. The stock has risen about 9 per cent so far this year, through Wednesday’s close.

Last month, Microsoft decided to disclose Azure revenue in dollars, instead of just growth rates, offering a clearer picture of how its cloud business stacks up against rivals Amazon Web Services and Google Cloud.

Capital expenditure for the quarter stood at US$45.2-billion, up from US$34.9-billion in the year-ago period. Microsoft’s own projection for first-quarter capital expenditures was US$50-billion.

The company reported free cash flow of US$18.6-billion. Analysts were expecting free cash flow of US$8.54-billion, according to Visible Alpha.

Overall, Big Tech is expected to pump more than US$700-billion this year into building data centres and securing the hardware and energy needed to develop and run AI technologies.

While faster revenue growth at these companies indicates their bets could be paying off, concerns over the cost of financing the outlay have heightened over the past few weeks.

Shrinking cash flows and rising debt loads at U.S. tech companies, including recent stress at neocloud CoreWeave, as well as record-high costs to insure Meta’s debt against default have all added to market turmoil.

Investors last week sold off shares in Meta and many stocks central to the AI trade after the Facebook parent raised its annual capital spending forecast and announced plans to sell new stock to help fund that spending.

Microsoft had forecast capital expenditure of US$190-billion in 2026. The tech giant also faces pressure as increasingly sophisticated agentic AI tools threaten its productivity software business.

Some analysts, however, believe that Microsoft’s strong balance sheet gives it an edge over rivals as AI spending rises. According to Truist, the company’s 5-year credit default swaps – a measure of perceived default risk – remain the tightest among tech giants, even as spreads have widened across much of the AI trade.

Microsoft is also the only one among hyperscalers expected to remain cash flow positive next year, compared with the cash burn expected at peers Alphabet, Amazon and Oracle among others.