Microsoft on Wednesday forecast fiscal second-quarter cloud growth and overall sales that beat Wall Street estimates, sending shares up more than 5 percent in after-hours trading. The forecast came after Microsoft had earlier beaten expectations for first-quarter cloud revenue, offering fresh evidence that its hefty AI investments were paying off as Wall Street grows increasingly wary of Big Tech's debt-fuelled spending. The software and cloud company also generated US$18.6 billion in free cash flow in its fiscal first quarter ended September – some US$10 billion more than analysts expected – as capital spending came in below the company's own forecast and Microsoft's Azure cloud computing business surged 48 percent. Microsoft said it expects second-quarter Azure growth of 49 to 50 percent, above analyst estimates of 47.6 percent, according to Visible Alpha data. The company forecast overall sales of US$96 billion to US$97.1 billion, above estimates of US$95.6 billion, according to LSEG data. That financial firepower set Microsoft apart from rivals such as Alphabet and Meta, whose heavy AI investments have squeezed free cash flow and increased their reliance on borrowing. Alphabet reported negative free cash flow of US$9.07 billion in the third quarter as capital spending jumped, overshadowing a doubling of its cloud sales and sending its shares down 8 percent in extended trading. Microsoft shares have risen about 9 percent so far this year, through Wednesday's close. Its five-year credit default swaps – a measure of perceived default risk – remain the tightest among the largest tech companies, according to Truist, even as spreads have widened across much of the AI trade. The results also show 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. CEO Satya Nadella has sought to capture that demand by giving customers cheaper options, as businesses grapple with the rising cost of deploying AI. Microsoft has rolled out a string of lower-cost models, while its new Copilot Cowork agent allows users to switch between models. "By helping organisations build and own their own intelligence, and earning trust through agent safety and security, we are translating our innovation into growing adoption," Nadella said in a statement on Wednesday. "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." Revenue at Microsoft's Azure cloud computing business grew to US$33.17 billion in the quarter, topping Visible Alpha's estimate of US$32.84 billion. Overall revenue rose by a fifth to $92.28 billion, and an adjusted profit of US$4.89 per share beat an average estimate of US$4.73 a share. (Reuters) Edited by Cecil Wong