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

Microsoft's cloud and overall sales grew beyond Wall Street's expectations in the fiscal second quarter, sending shares up over 5% in after-hours trading. The company's AI investments, which have been a focus of concern for investors, appear to be paying off. Microsoft generated $18.6 billion in free cash flow in its first quarter, exceeding analysts' expectations by over $10 billion.

This is due to lower-than-expected capital spending and a 48% surge in Microsoft's Azure cloud computing business. The company expects Azure growth to be between 49% and 50% in the current quarter, surpassing analysts' estimates of 47.6%. Overall, Microsoft forecast sales of $96 billion to $97.1 billion, also beating estimates. This strong performance stands in contrast to rivals like Alphabet and Meta, whose heavy AI investments have squeezed their free cash flow and increased reliance on borrowing.