Microsoft gave investors a stronger financial case for its artificial-intelligence strategy on Wednesday, forecasting fiscal second-quarter Azure growth and total sales above Wall Street expectations. The outlook helped send the company's shares more than 5% higher in after-hours trading on October 28, even as investors continue to question whether the largest technology companies can sustain the cost of building AI infrastructure.
The forecast followed a fiscal first quarter in which Microsoft exceeded expectations for cloud revenue. Azure, its cloud-computing business, grew 48%, while the company generated $18.6 billion in free cash flow for the quarter ended in September. That cash-flow figure was about $10 billion above analysts' expectations, according to Reuters, as Microsoft's capital spending came in below its own forecast.
Azure outlook exceeds estimates
Microsoft expects Azure growth of 49% to 50% in its fiscal second quarter. The forecast is higher than the 47.6% growth analysts were expecting, based on Visible Alpha data. The company also projected total sales of $96 billion to $97.1 billion, compared with an estimate of $95.6 billion compiled by LSEG.
| Measure | Microsoft's figure | Comparison |
|---|---|---|
| Fiscal second-quarter Azure growth | 49% to 50% | 47.6% analyst estimate from Visible Alpha |
| Fiscal second-quarter total sales | $96 billion to $97.1 billion | $95.6 billion LSEG estimate |
| Fiscal first-quarter free cash flow | $18.6 billion | About $10 billion above analyst expectations |
The figures offer a contrast with the financial pressure created by AI investment at some other major technology companies. Alphabet reported negative free cash flow of $9.07 billion in the third quarter after its capital spending increased. Its cloud sales doubled, but the cash-flow result overshadowed that performance and sent Alphabet shares down 8% in extended trading. Reuters also said heavy AI investment at Alphabet and Meta had squeezed free cash flow and increased their reliance on borrowing.
Cash generation becomes part of the AI debate
Microsoft's results arrive as investors examine whether demand for AI services is translating into durable business returns, rather than simply driving a costly expansion of data-center capacity. The company's cash generation and lower-than-forecast capital spending provide a different financial picture from the one presented by some rivals, although the figures do not remove the broader questions surrounding the expense of the AI buildout.
Chief Executive Officer Satya Nadella has pursued a strategy aimed at capturing corporate demand by offering customers lower-cost options as companies confront the expense of deploying AI. Microsoft has introduced several lower-cost models, according to Reuters. The company is also seeking to reassure customers and investors that AI can reinforce its established software business rather than undermine it.
Microsoft's performance also addresses concerns about whether its AI business is too dependent on unprofitable OpenAI. The report did not provide additional financial details about that relationship, but it said the results showed Microsoft benefiting from corporate demand for AI while easing those concerns.
Microsoft shares had gained about 9% so far in 2026 through Wednesday's close, before the after-hours move. The company's five-year credit default swaps, a measure of perceived default risk, remained the tightest among the largest technology companies, according to Truist, even as spreads widened across much of the AI trade.
