Microsoft Beat Forecasts for Cloud Revenue

Microsoft exceeded analysts' expectations for quarterly revenue from cloud services. This suggests that the company’s massive investments in artificial intelligence are beginning to pay off, even as Wall Street grows increasingly wary of tech giants’ debt-fueled spending, Reuters reports. The company’s stock rose following the release of the report.

Revenue for Azure, Microsoft’s cloud computing division, rose 48% to $33.17 billion in the first quarter of the fiscal year that ended in September. Analysts’ consensus estimate was $32.84 billion, according to Visible Alpha. In the previous quarter, Azure’s revenue was $29.4 billion.

Previously, the company had reported only Azure's growth rates, but in September it decided to disclose revenue in dollars to make it easier to compare with the cloud divisions of its competitors—Amazon Web Services and Google Cloud.

Microsoft's total revenue rose 19% to $92.3 billion, compared with a forecast of $90.6 billion. Net income rose 32% year-over-year to $36.6 billion.

Quarterly capital expenditures totaled $45.2 billion—30% more than a year earlier, although the company itself had forecast expenditures of $50 billion. Free cash flow reached $18.6 billion, significantly exceeding analysts’ expectations. According to Visible Alpha, analysts had forecast free cash flow of $8.54 billion.

Microsoft shares rose by about 4% in after-hours trading on October 28. Since the beginning of the year, the company's shares have risen by nearly 9%.

Microsoft's results came amid growing concerns on Wall Street about the debt burden that major technology companies are using to finance their investments in artificial intelligence. This year, their spending on building data centers, purchasing equipment, and power supply is expected to exceed $700 billion.

Concerns about the cost of financing these investments have intensified in recent weeks due to declining cash flows and rising debt among U.S. tech companies, including problems at the cloud computing company CoreWeave and the record-high cost of insuring Meta’s debt against default. Last week, investors sold off shares of Meta and other companies tied to the AI sector after Facebook’s parent company raised its annual capital expenditure forecast and announced plans to issue new shares to finance those expenses.

Earlier on Wednesday, cloud giant Oracle stated that it expects capital expenditures to peak in the current and next fiscal years, while promising to raise no more than $20 billion in additional funding for AI projects through fiscal year 2030. Microsoft itself has projected capital expenditures of $190 billion for 2026. The tech giant also faces the risk that autonomous AI tools could encroach on its productivity software business.

Some analysts believe that Microsoft’s strong balance sheet gives it an edge over its competitors amid rising AI spending, Reuters reports. According to analysts at Truist, the company’s five-year credit default swaps—an indicator of the market’s perception of default risk — still have the lowest spreads among the largest technology companies, even though spreads have widened significantly across much of the AI-related sector.

Microsoft also remains the only hyperscaler expected to generate positive free cash flow next year, while Alphabet, Amazon, and Oracle are expected to face cash outflows.

This article was AI-translated and verified by a human editor