Microsoft Cloud Growth Eases AI Spending Worries

Microsoft posted Azure cloud growth of 48 percent for the fiscal first quarter ended September, reaching $33.17 billion against a Visible Alpha estimate of $32.84 billion. Free cash flow came in at $18.6 billion, roughly $10 billion above analyst projections. Shares rose more than 3 percent in after-hours trading following the release on Wednesday.

Alphabet reported negative free cash flow of $9.07 billion for the third quarter as capital spending climbed, and its shares fell 8 percent in extended trading. Meta recorded its first cash burn in more than a decade last week and said it would issue new stock to cover rising capital costs.

Revenue across Microsoft reached $92.28 billion, up by a fifth, and adjusted profit was $4.89 per share against an average estimate of $4.73. Capital expenditure for the quarter was $45.2 billion, compared with $34.9 billion a year earlier and below the company's own projection of $50 billion. Jonathan Neilson, vice president of investor relations, said some third-party capacity deliveries expected in the first quarter were delayed. Spending in calendar 2026 has reached $118.1 billion, leaving $56.9 billion needed in the final three months to meet the $175 billion forecast issued in July.

Oracle said earlier on Wednesday that capital spending is expected to peak this fiscal year and next, with no more than $20 billion in additional financing for AI through fiscal 2030. Across Big Tech, more than $700 billion is expected to be spent this year on data centers, hardware and energy for AI systems. Stress at neocloud company CoreWeave and record-high costs to insure Meta's debt against default have added to market turmoil.

On a call with analysts, CEO Satya Nadella said Microsoft offers a range of AI options, some at lower cost than cutting-edge models such as Anthropic. He said the company works to make Copilot products more useful with each model release. Jesse Cohen, senior analyst at Investing.com, called the report "about as clean as it gets for a company this size," adding that "demand still exceeds supply" and that "returns are finally showing up in earnings."

Microsoft expects second-quarter Azure growth of 49 percent to 50 percent, above the 47.6 percent analysts had forecast. Total sales are projected at $96 billion to $97.1 billion against estimates of $95.6 billion. Capital spending for the quarter rose to $45.2 billion from $34.9 billion a year earlier.