Microsoft Azure growth and $18.6 billion cash flow ease AI spending fears

Microsoft forecast cloud growth and overall sales above Wall Street expectations after reporting stronger-than-expected quarterly Azure revenue and $18.6 billion in free cash flow, Reuters reported on October 28. Its shares rose more than 5% in after-hours trading as the results offered investors some reassurance about the financial returns from heavy AI investment.

Azure revenue reaches $33.17 billion

Azure revenue grew 48% to $33.17 billion in Microsoft's fiscal first quarter, which ended in September. That exceeded the $32.84 billion estimate compiled by Visible Alpha, according to Reuters.

Total quarterly revenue rose about a fifth to $92.28 billion. Adjusted earnings of $4.89 per share also beat the average analyst estimate of $4.73.

For the fiscal second quarter, Microsoft projected Azure growth of 49% to 50%, compared with an analyst estimate of 47.6%. It forecast total sales of $96 billion to $97.1 billion, above the $95.6 billion estimate compiled by LSEG.

Lower capital spending reflects delivery delays

The company generated about $10 billion more free cash flow than analysts had expected, Reuters reported. Capital expenditure was $45.2 billion, below Microsoft's own $50 billion projection, although it remained above the $34.9 billion spent a year earlier.

That undershoot should not be read as a reduction in Microsoft's underlying AI investment plans. Jonathan Neilson, its vice president of investor relations, told Reuters that some third-party capacity deliveries expected in the first quarter had been delayed.

The distinction matters because lower spending in one quarter can improve cash flow without permanently reducing the infrastructure bill. Microsoft had previously forecast $175 billion in capital expenditure for calendar 2026.

Microsoft points to broader AI demand

Chief Executive Satya Nadella told analysts that a wider group of customers was making longer-term AI spending plans, rather than demand depending on a handful of large buyers. He also said Microsoft was offering a range of AI options, including lower-cost alternatives to the most advanced models.

Those comments describe management's view of demand, not a guarantee of future returns. The reported results nevertheless give investors concrete measures to watch: Azure's revenue growth, cash generation and whether delayed capacity deliveries change the timing of future capital expenditure.

Sources

• Reuters: Microsoft's cloud growth, cash flow offer respite from AI spending fears
• KNKX / Associated Press: Microsoft Visitor Center file-photograph context