🔍 Read the full analysis: Same Results Season, Opposite Reactions For Microsoft And Alphabet on ThorstenMeyerAI.com
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TL;DR
After both companies reported results on October 28, Microsoft shares rose about 4% in after-hours trading and Alphabet’s fell about 10%. Alphabet reported faster Google Cloud growth, but it also posted negative free cash flow and missed analyst forecasts; Microsoft beat expectations and remained cash-flow positive. Both companies said demand for AI computing exceeds available capacity.
Microsoft shares rose about 4% and Alphabet shares fell about 10% in after-hours trading Wednesday, after both technology companies reported quarterly results and described heavy investment in AI computing. Alphabet’s Google Cloud grew faster than Microsoft’s Azure, but investors also saw negative free cash flow and missed analyst forecasts at Alphabet, compared with Microsoft’s positive cash flow and results that beat expectations.
Microsoft reported fiscal first-quarter revenue of $92.3 billion, up 19% year over year. Adjusted earnings per share were $4.89, above the $4.73 expected by analysts polled by LSEG, according to CNBC. Azure revenue rose 48% to $33.2 billion, beating Microsoft’s July forecast of 45%. It was the first quarter in which Microsoft disclosed Azure revenue in dollars, according to the source material.
Alphabet reported Google Cloud revenue of $30.7 billion, up 103%. Yet the company missed analyst expectations for revenue, earnings per share and search advertising, according to CNBC. The source characterizes this as Alphabet’s first simultaneous revenue and profit miss in nearly four years. Alphabet’s free cash flow was negative $9.1 billion, while Microsoft reported positive free cash flow of $18.6 billion.
The spending and funding figures help explain the contrast. Alphabet raised $28.7 billion in bonds and $12.4 billion by issuing shares during the quarter, and did not buy back stock, according to the source. Microsoft had not issued bonds, and finance chief Amy Hood said it expects to remain free-cash-flow positive during its fiscal year. Its reported capital spending was $45.2 billion including finance leases, or $39.4 billion in cash paid for property and equipment.
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 Shapes the AI Bet
The share moves suggest investors were weighing not only how quickly cloud businesses are growing, but also how those companies pay to expand. Alphabet’s cloud growth rate was more than twice Azure’s, yet its negative free cash flow and forecast misses added pressure to a quarter in which spending was already large. Microsoft, by contrast, paired strong cloud growth with positive free cash flow and results above analyst expectations.
That distinction matters because investment in AI data centers, chips and related equipment requires substantial upfront funding. A company that generates cash after investment has more room to fund expansion internally; a company spending beyond its cash generation may need outside financing. These quarterly figures do not establish which company will earn better returns over time, but they do show different near-term funding positions as both pursue capacity growth.
Investors also have reason to distinguish booked demand from realized revenue. The companies disclosed large contracted backlogs, but those commitments are not the same as cash already received. Microsoft said its commercial remaining performance obligation reached $677 billion, with about 30% expected to convert to revenue within 12 months. The source puts Google Cloud’s commitments at $561 billion. The timing and eventual economics of those commitments remain relevant to judging the scale of the investment.
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Cloud Growth Meets Capacity Limits
The results arrived as both companies said demand for AI computing continues to outstrip available supply. Microsoft said some expected third-party capacity deliveries were delayed, pushing planned spending into later periods. Hood said the company expects capital spending above $50 billion in the current quarter and an acceleration in the first half of 2027. The source reports Microsoft’s 2026 capital-spending plan at about $170 billion, down from an earlier estimate of about $175 billion.
Alphabet’s stated 2026 capital-spending plan was $195 billion to $205 billion, unchanged, with a substantial increase expected in 2027. The source’s comparison of cash capital spending with the prior year puts Alphabet’s increase at 114%; that is an arithmetic calculation based on cash-flow statements, not a company forecast. It also reports Microsoft’s cash spending on property and equipment at twice the year-earlier amount.
Microsoft’s contracted backlog rose 73%, but its reported average duration was 2.3 years, so not all of the total will be recognized soon. Its quarterly filing also reported $10 billion in revenue from OpenAI, including revenue-sharing payments, or roughly 11% of total revenue by the source’s calculation. Microsoft had a weaker Windows result: revenue from PC makers declined 27%, which the source attributes to weaker PC demand and a difficult comparison with the prior year.
Spending Timing and Returns Remain Open
The quarter does not settle whether either company’s AI investments will generate returns sufficient to justify their scale. Backlogs are commitments, not completed sales, and the companies disclosed different amounts of contracted future revenue with differing conversion timelines. The source does not provide enough detail to compare the eventual margins or cash collection from those contracts directly.
Microsoft’s spending was affected by delayed equipment deliveries, so its quarterly cash flow may not reflect the full pace of investment it planned. Hood’s guidance points to higher near-term outlays, but the timing and scale of later deliveries remain uncertain. Alphabet, meanwhile, has said it is constrained by supply and is renting capacity from third parties; the source does not specify the cost or duration of those arrangements.
The reported share-price reactions are after-hours moves, not final assessments of the companies’ longer-term prospects. The source gives no later trading data, and it does not establish how investors will respond once spending rises or more contracted demand converts into revenue.
Investors Watch Spending and Delivery
The next evidence will come from subsequent quarterly reports and earnings calls, when investors can compare actual spending with management guidance. For Microsoft, attention will center on whether spending exceeds $50 billion in the current quarter, whether delayed capacity arrives, and whether the company remains free-cash-flow positive as Hood expects. Its guidance also points to faster investment during the first half of 2027.
For Alphabet, investors will look for signs that its planned 2026 spending supports continuing cloud growth without extending negative free cash flow, and for updates on financing and rented computing capacity. Across both companies, the key measures include cloud revenue, capital spending, available AI capacity and the pace at which contracted commitments become recognized revenue and cash.
The immediate results show a market response to growth, earnings and funding together, rather than to cloud growth rates alone. Whether that response persists will depend on future results; the October quarter by itself does not answer how profitable the companies’ AI investments will be.
Key Questions
Why did Microsoft rise while Alphabet fell after the results?
Microsoft beat analyst expectations for revenue and adjusted earnings per share and reported $18.6 billion in positive free cash flow. Alphabet’s Google Cloud grew faster, but the company missed analyst forecasts and reported negative $9.1 billion in free cash flow. The after-hours moves reflect the market reaction reported by the source, not a definitive judgment on either company’s long-term prospects.Did Google Cloud grow faster than Azure?
Yes. Alphabet said Google Cloud revenue rose 103% to $30.7 billion, while Microsoft reported Azure revenue rose 48% to $33.2 billion. The growth rates cover each company’s reported quarter and are not by themselves a measure of profit or cash generation.How much did Microsoft and Alphabet spend on capital investment?
Microsoft reported $45.2 billion including finance leases, and $39.4 billion in cash paid for property and equipment. Alphabet’s 2026 capital-spending plan was reported at $195 billion to $205 billion; that is a full-year plan, not the amount spent in the quarter.Are the companies able to meet demand for AI computing?
Both said demand exceeds available supply. Microsoft cited delayed third-party capacity deliveries, while Alphabet was reported to be renting capacity from third parties. The source does not establish when supply constraints will ease.Do the results show which company will win the AI race?
No. The results show different quarterly growth, earnings and cash-flow positions, alongside large investment plans and capacity constraints. They do not determine which company will earn the stronger long-term returns from AI.Source: ThorstenMeyerAI.com
