Alphabet shares slide after $9 billion AI cash burn; Microsoft gains

The numbers: Revenue rose 25% to $127.6 billion but came in under the $128.2 billion LSEG consensus, the first miss on both revenue and profit in nearly four years, CNBC reported. Adjusted earnings of $2.67 a share trailed the $3.02 estimate, and net income fell to $26.17 billion from $34.98 billion a year earlier. Capital spending, mostly on AI data centers and chips, was $51.4 billion in the quarter, below the $55.1 billion analysts expected but still more than Alphabet's businesses generated in operating cash of $42.3 billion, according to its cash-flow statement. Its long-term debt rose to $125.1 billion from $21.6 billion a year ago, CNBC reported.

What worked and what didn't: Google Cloud more than doubled its revenue to $30.7 billion, beating estimates, and Alphabet said its Gemini app reached 1 billion users. But advertising revenue of $82.01 billion came in about $1.41 billion short of estimates, and search revenue of $63.35 billion grew 12% but missed the $64.96 billion estimate. An $8.7 billion loss on the value of Alphabet's stock holdings in other companies cut earnings by 55 cents a share, the company said.

Microsoft's quarter: Microsoft reported revenue up 19% to $92.3 billion, above the $90.69 billion LSEG estimate, and adjusted earnings of $4.89 a share versus $4.73 expected. Azure, its cloud business, grew 48% to $33.17 billion, the first time Microsoft has reported Azure revenue in dollars, up from 42% growth in the June quarter. Capital spending including finance leases was $45.2 billion, below the $50.67 billion StreetAccount estimate; finance chief Amy Hood said “some third-party capacity deliveries we expected in Q1 were delayed.” Shares rose about 4% after hours, though CNBC noted Microsoft's free cash flow fell 27% from a year earlier.

Side by side: Both companies are spending heavily on AI, but they are at different points. Microsoft's spending came in under forecasts while its cloud sales beat them, and its backlog of signed commercial contracts rose 73% to $677 billion. Alphabet's spending stayed huge, and its cloud beat could not offset weaker ad sales. Alphabet kept its 2026 capital spending forecast at $195 billion to $205 billion, and finance chief Anat Ashkenazi said, “We continue to expect our capex to increase significantly in 2027, and will provide further details on our Q4 call.”

The strongest case from each side: Bulls point to Google Cloud's growth and Microsoft's Azure surge as signs that businesses are paying for AI, and to Microsoft's $677 billion contract backlog as demand already signed. Skeptics say the bills are arriving faster than the returns at Alphabet. “The cloud business was the only business that beat at 103% growth,” Jefferies analyst Brent Thill said on CNBC. “Everything else missed.”

What's still unknown: Alphabet has not said how big its 2027 spending increase will be; it plans to give details on its next earnings call. Neither company has said when its AI spending will pay for itself. Amazon reports on Thursday, which will show whether the third big cloud provider looks more like Microsoft or Alphabet this quarter.

Alphabet figures come from its third-quarter release filed with the SEC and from Reuters and CNBC; Microsoft figures come from its fiscal first-quarter release and CNBC. Analyst estimates are LSEG, FactSet or StreetAccount consensus as those outlets reported them, and other data providers had slightly different numbers. Share moves are from extended trading on Oct. 28 and can change when regular trading opens Thursday. Free cash flow is a company-defined, non-GAAP measure.