Oct 28 (Reuters) – Microsoft surpassed expectations for quarterly cloud revenue on Wednesday, signaling that its hefty AI investments were paying off at a time Wall Street grows increasingly wary of Big Tech’s debt-fueled spending.
Revenue at Microsoft’s Azure cloud computing business grew 48% to $33.17 billion in the first quarter ended September, topping Visible Alpha’s estimates of $32.84 billion. Azure revenue came in at $29.4 billion in the prior quarter.
Shares of Redmond, Washington-based Microsoft were up about 4% in extended trading. The stock has risen about 9% 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 $45.2 billion, up from $34.9 billion in the year-ago period. Microsoft’s own projection for first-quarter capital expenditures was $50 billion.
The company reported free cash flow of $18.6 billion. Analysts were expecting free cash flow of $8.54 billion, according to Visible Alpha.
Overall, Big Tech is expected to pump more than $700 billion this year into building data centers 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 US 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.
Earlier on Wednesday, hyperscaler Oracle said it expects capital spending to peak this fiscal year and next, but pledged to raise no more than $20 billion in additional financing for AI through fiscal 2030.
Microsoft had forecast capital expenditure of $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.
(Reporting by Deborah Sophia in Bengaluru; Editing by Diti Pujara)
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