🔍 Read the full analysis: Why One Night Brought Praise For Microsoft And Criticism For Alphabet on ThorstenMeyerAI.com
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TL;DR
Microsoft shares rose about 4% in after-hours trading on Wednesday, while Alphabet shares fell about 10%, after both reported quarterly results. Alphabet’s Google Cloud grew faster than Azure, but Alphabet reported negative free cash flow and missed analyst forecasts; Microsoft posted positive free cash flow and beat expectations. Both companies said AI demand exceeds available computing capacity.
Microsoft shares rose about 4% and Alphabet shares fell about 10% in after-hours trading Wednesday, after the two companies reported results that highlighted different financial pressures in their AI investments. Alphabet’s Google Cloud grew faster than Microsoft’s Azure, but Alphabet reported negative free cash flow and missed analyst forecasts, while Microsoft beat expectations and remained cash-flow positive.
Microsoft reported quarterly revenue of $92.3 billion, up 19%, and adjusted earnings per share of $4.89, above the $4.73 expected by analysts polled by LSEG, according to CNBC. Azure revenue rose 48% to $33.2 billion, exceeding Microsoft’s July growth forecast of 45%. The company disclosed Azure’s quarterly revenue in dollars for the first time in these results.
Alphabet’s revenue from Google Cloud increased 103% to $30.7 billion, more than twice Azure’s growth rate. But Alphabet recorded negative free cash flow of $9.1 billion, its second consecutive negative quarter, while Microsoft reported $18.6 billion in free cash flow. Alphabet also fell short of analyst forecasts for revenue, earnings per share and search advertising, according to the source material’s account of CNBC reporting.
Both companies are spending heavily to build computing capacity. Microsoft said capital spending, including finance leases, was $45.2 billion; cash paid for property and equipment was $39.4 billion, compared with $19.4 billion a year earlier. Alphabet’s capital spending rose 114% year over year, according to the source’s calculations from company cash-flow statements. Microsoft’s planned third-party capacity deliveries were delayed, and Alphabet said it had begun renting capacity from outside providers.
Infographic 01 · The scorecard
Same night, opposite verdicts.
The four numbers from my 28 October preview, scored with both companies’ own reports for July to September 2026.
The four numbers I said to watch, scored
Status chips: ok = healthy, hold = watch, urgent = warning sign. My assessment.
| Metric | Microsoft | Alphabet |
|---|---|---|
| 1 · Capex guidance | Microsoft hold About $170B for calendar 2026 (July: about $175B), lower only because deliveries slipped. More than $50B next quarter. | Alphabet hold $195–205B for 2026, unchanged. 2027 to “increase significantly”; no number yet. |
| 2 · Cloud growth vs. capex | Microsoft hold Azure +48%. Capex incl. finance leases +30%; cash capex about 2×. | Alphabet hold Google Cloud +103%. Capex +114% to $51.4B. |
| 3 · Free cash flow + funding | Microsoft ok +$18.6B (−27%). No new bonds. $10.2B returned to shareholders. | Alphabet urgent −$9.1B. $28.7B bonds and $12.4B new shares in the quarter. No buybacks. |
| 4 · Capacity | Microsoft hold “Demand continues to exceed available supply.” Delayed GPU capacity moves to the first half of 2027. | Alphabet hold “Supply constrained.” Renting third-party capacity; margin pressure ahead. |
Microsoft
≈ +4%After-hours, 28 Oct (CNBC; Reuters: more than 5%)
- Beat on revenue ($92.3B, +19%) and earnings per share ($4.89 adjusted vs. $4.73 expected)
- Azure guide 49–50% for the current quarter
- Self-funded build-out
Alphabet
≈ −10%After-hours, 28 Oct (CNBC, Reuters)
- Missed on revenue ($127.6B vs. $128.2B expected) and earnings ($2.67 adjusted vs. $3.02)
- Search +12%, below forecasts; AI Mode earns less per query so far
- Build-out now partly financed with bonds and new shares
Sources: Microsoft FY27 Q1 release and call, 28 Oct 2026; Alphabet Q3 2026 release (8-K), 28 Oct 2026; Alphabet Q3 call, third-party transcript; CNBC on Microsoft, 28 Oct; CNBC on Alphabet, 28 Oct; Reuters, 28 Oct. Analyst expectations as reported by CNBC and Reuters (LSEG, StreetAccount). Capex growth for Alphabet and Microsoft’s cash capex: my arithmetic from the cash flow statements. Status chips: Thorsten Meyer.
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Cash Flow Shaped the Market Reaction
The results suggest investors were weighing how companies fund AI expansion, not just how fast their cloud businesses are growing. Alphabet’s faster cloud growth did not offset its negative free cash flow, weaker-than-expected results in other areas and reliance on outside financing during the quarter. Microsoft’s positive free cash flow and earnings beat offered investors a different near-term financial picture.
That distinction matters because building and operating AI data centers requires substantial spending on servers, chips, power and facilities. The companies’ reported customer commitments are large—$677 billion for Microsoft and $561 billion for Google Cloud—but contracted future revenue is not the same as cash received today. Microsoft said about 30% of its commercial remaining performance obligation is expected to become revenue within 12 months; the average contract duration is 2.3 years.
The market moves are a reaction to one set of quarterly results, not a verdict on which company will lead AI. Both firms said demand exceeds available capacity, and both face questions about whether spending and infrastructure can keep pace with customer needs without putting further pressure on cash.
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Cloud Growth and Spending Plans
Microsoft’s reported quarter was the first of its fiscal 2027, which began in July. The company’s capital-spending figures depend on what is counted: its $45.2 billion figure includes finance leases, while $39.4 billion reflects cash paid for property and equipment. The source material says the cash figure was below analyst expectations, in part because deliveries of third-party capacity were delayed.
Microsoft finance chief Amy Hood said some expected deliveries had slipped. She forecast capital spending above $50 billion in the current quarter and an acceleration in the first half of 2027. Microsoft’s reported backlog, or commercial remaining performance obligation, rose 73% to $677 billion, but much of that amount is scheduled for revenue recognition beyond the next year.
Alphabet reported raising $28.7 billion in bonds and $12.4 billion through new share issuance during the quarter, and it did not buy back shares, according to the source material. Its 2026 capital-spending plan remained at $195 billion to $205 billion, while Microsoft’s plan was about $170 billion, down from roughly $175 billion in July. Both companies pointed to higher spending in 2027.
Capacity and Cash Pressures Remain
The results do not show when the supply constraints affecting either company will ease. Microsoft said some GPU deliveries had moved into the first half of 2027, while Alphabet has turned to rented third-party capacity; the available information does not specify how much additional capacity either approach will provide or at what cost.
It is also unclear how quickly large customer commitments will convert into recognized revenue and cash. Microsoft reported $10 billion in quarterly revenue from OpenAI, including revenue-sharing payments, according to its filing, but that figure does not establish the future pace or profitability of the relationship. Alphabet’s negative free cash flow and financing activity describe the reported quarter; they do not alone determine its longer-term funding needs or returns on AI investment.
Share-price moves cited here were after-hours reactions, and the source material does not provide subsequent trading performance. The reasons investors placed different weights on the results cannot be confirmed from the price moves alone.
Spending Plans Face New Tests
Investors will watch upcoming quarterly reports for evidence that delayed infrastructure deliveries arrive and that cloud revenue can grow alongside the cost of adding capacity. For Microsoft, the next spending milestone is Hood’s forecast of capital spending above $50 billion in the current quarter. She also expects investment to accelerate in the first half of 2027.
Alphabet’s next results should show whether its spending plans and use of outside financing continue as cloud demand grows, and whether its search advertising and broader financial results recover. For both companies, the central near-term questions are whether available computing capacity expands and whether customer demand produces enough revenue and cash to support the investment.
Key Questions
Why did Microsoft shares rise while Alphabet shares fell?
The source material points to Microsoft’s earnings beat and positive free cash flow, compared with Alphabet’s negative free cash flow and misses on revenue, earnings per share and search advertising. These factors offer an explanation for the contrasting reaction, but do not prove what every investor considered.
Did Google Cloud grow faster than Azure?
Yes. Google Cloud revenue rose 103% to $30.7 billion, while Azure revenue rose 48% to $33.2 billion in the reported quarter. The growth rates do not by themselves indicate which business is more profitable.
How much free cash flow did each company report?
Microsoft reported $18.6 billion in free cash flow. Alphabet reported negative $9.1 billion, its second consecutive negative quarter, according to the source material.
Are AI computing shortages over?
No. Both companies said demand exceeds available supply. Microsoft cited delayed capacity deliveries, while Alphabet had started renting capacity from third parties.
Source: ThorstenMeyerAI.com
