Microsoft's cloud growth, cash flow offer respite from AI spending fears

Microsoft's Azure cloud business grew 48% in the September quarter, while free cash flow reached $18.6 billion, easing investor concerns over mounting AI infrastructure spending.

Microsoft on Wednesday delivered a big cash flow beat and forecast strong cloud growth, offering fresh evidence that its hefty artificial intelligence (AI) bets were paying off even as concerns mount over Big Tech’s spending spree.

 

The results underscore a widening financial divide among the industry's biggest AI spenders, as soaring infrastructure costs force some rivals to turn more heavily to capital markets. Microsoft’s shares rose more than 3 per cent in after-hours trading.

 

The company posted market-beating 48 per cent growth in its Azure cloud business in its fiscal first quarter ended September, and generated $18.6 billion in free cash flow, some $10 billion more than analysts expected.

 

 

That financial firepower set the firm apart from its rivals such as Alphabet and Meta, whose heavy AI investments have squeezed free cash flow and increased their reliance on borrowing.

 

“Microsoft’s first-quarter report was about as clean as it gets for a company this size,” said Jesse Cohen, senior analyst at Investing.com.

 

“After Meta’s and Alphabet’s numbers revived AI-spending anxiety, this is the counterweight. Demand still exceeds supply, the commercial backlog is enormous, and returns are finally showing up in earnings and overall revenue.”

 

The results also showed Microsoft capitalising on corporate demand for AI, easing fears that the technology threatens its software empire and that its AI fortunes are too closely tied to unprofitable OpenAI. Still, its ties to the AI lab netted it $10 billion in revenue in the September quarter.

 

Microsoft shares have risen about 9 per cent so far this year compared with a 13 per cent rise in the S&P 500 index.