AI News
Microsoft and Alphabet Earnings Split: Both Clouds Surged on AI, Only One Stayed Cash-Positive
Microsoft and Alphabet reported results on October 28 after the US markets closed, and the two reports tell one story two ways. Both companies’ cloud businesses surged on AI demand. The market rewarded one and punished the other — and the difference is in the cash flow statement, not the revenue line.
Microsoft: Azure accelerates, cash flow stays positive
Microsoft’s revenue rose 19% to $92.3 billion in its fiscal first quarter, the three months to September 30, beating the $90.69 billion analysts expected. Azure grew 48% to $33.17 billion — the first time Microsoft has disclosed Azure’s revenue in dollars — up from 42% growth in the June quarter and ahead of the roughly $32.3 billion expected. Microsoft Cloud revenue reached $63.9 billion, up 30%. Operating income rose 21% to $45.9 billion. Net income rose 32% to $36.6 billion on paper, but $36.4 billion, up 18%, excluding the swing in its OpenAI investment: a $207 million gain this quarter against a $3.1 billion loss a year earlier. Adjusted earnings were $4.89 per share against $4.73 expected.
The spending is heavy but still funded. Capital expenditure plus finance leases totaled $45.2 billion, up 30%, though below the $50.67 billion the market feared. Free cash flow was $18.6 billion — down 27% from a year earlier, but still firmly positive. Contracted revenue not yet booked jumped 73% to $677 billion. Microsoft also reorganized its reporting into two segments: Agents and Infra ($76.8 billion, up 25%) and Devices and Consumer ($15.5 billion, down 3%). Chief financial officer Amy Hood said demand still exceeds supply, and the company expects capital spending above $50 billion next quarter. Shares rose in after-hours trading.
Alphabet: cloud doubles, spending pushes cash flow negative
Alphabet’s revenue rose 25% to $127.6 billion, but that missed the $128.22 billion consensus. Google Cloud more than doubled, up 103% to $30.7 billion, with operating income more than tripling to $11.1 billion from $3.6 billion; the cloud margin widened from 23.7% to 36.2%. Alphabet said enterprise AI infrastructure and solutions drove the growth, and sales of its own TPU chips were a meaningful contributor. Search advertising rose 12% to $63.35 billion, with query growth at its fastest pace in five years; YouTube ads rose 9% to $11.2 billion; Google Services revenue rose 11% to $96.3 billion. Operating income rose 30% to $40.6 billion.
The problem is below the operating line and in the cash flow. Earnings per share fell to $2.12 from $2.87, missing the $3.02 estimate, after an $8.7 billion loss on equity securities cut net income by $6.7 billion and EPS by $0.55. Capital expenditure hit $51.4 billion in the quarter. Free cash flow was negative $9.07 billion — the second straight negative quarter after negative $5.9 billion in the second quarter. Alphabet’s shares fell sharply in after-hours trading.
The split that matters
Both companies are spending at a scale that would have been unthinkable a few years ago, and both say demand justifies it. The difference investors seized on is funding: Microsoft’s AI build-out is still paid for out of the cash its business generates, while Alphabet’s is now large enough to consume more cash than the company produces in a quarter — even with cloud revenue doubling. That is the question behind every AI-infrastructure bet: not whether demand is real, because both reports say it is, but how long the spending can run ahead of the cash. One analysis of Alphabet’s SEC filing notes the company raised $147.2 billion from stock, preferred shares and debt in the first nine months of 2026 against $132.0 billion of capital spending.
For readers of this site, the direct link is to yesterday’s story: OpenAI’s reported plan to buy Google’s TPUs. Alphabet’s cloud surge is partly TPU sales — and if OpenAI becomes a TPU buyer, that demand grows further. Amazon reports tonight, after the US close; its numbers will complete the picture of whether the cloud boom is funding itself or being funded. One caution on this article: after-hours share moves were reported inconsistently across outlets, so no precise move is quoted here; the direction — Microsoft up, Alphabet down — is consistent across reports.