Same AI race: Alphabet burns cash while Microsoft keeps it positive

Dubai: Google parent Alphabet’s shares fell about 10 percent while Microsoft shares rose about 4 percent in extended trading on October 28. Both tech majors showed an increase in cloud revenues, then why did the street give opposite verdicts? Alphabet missed estimates on revenue and earnings and swung to negative free cash flow. Microsoft beat on revenue, earnings and cloud.

Alphabet reported a Q3 revenue of $127.58 billion which is up 25 percent. Analysts expected the number to come in at $128.22 billion. Adjusted earnings per share reached $2.67 against a $3.02 forecast. This is the first simultaneous miss on both measures in nearly four years. It was the $8.66 billion loss on equity investments that drove the decline

Advertising did most of the damage. Ad revenue came in at about $82 billion, roughly $1.4 billion below expectations. But Google's cloud revenue more than doubled to $30.71 billion , up 103 percent. Analysts had expected $28.7 billion. Search advertising grew 12 percent to $63.35 billion (Dh232.7 billion), short of the $64.96 billion forecast. Operating income came in at $40.58 billion (Dh149.0 billion) against $43.19 billion expected.

Capital expenditure hit $51.36 billion, up 114 percent from $23.95 billion. That was still below the $55.09 billion analysts had penciled in. Free cash flow turned negative at $9.07 billion, compared with a positive $24.46 billion a year earlier. It is the second straight quarter in deficit.

Alphabet held its 2026 capital spending guidance at $195 billion to $205 billion. The company said spending will rise significantly in 2027. Projections put that figure above $300 billion.

Microsoft’s fiscal first-quarter revenue rose 19 percent to $92.28 billion, ahead of the $90.69 billion consensus. Adjusted earnings per share came in at $4.89 against $4.73.

The company disclosed Azure revenue in dollar terms for the first time. Azure brought in $33.17 billion, up 48 percent, against $32.32 billion expected. Total Microsoft Cloud revenue rose 30 percent to $63.9 billion.

Capital expenditure including finance leases totalled $45.2 billion, up 30 percent. Analysts had projected $50.67 billion. Free cash flow fell 27 percent to $18.63 billion but stayed positive. Lower spending and cost-cutting helped lift the shares.

Finance chief Amy Hood guided Azure growth to 49 to 50 percent at constant currency this quarter. She said roughly 75 percent of capital expenditure now goes to short-lived assets such as Intel chips and Nvidia GPUs. That share was about two-thirds in the prior three quarters.

Both companies have shown that they will be spending heavily on AI, and both grew their cloud revenue. But Microsoft managed to beat across the board and spent less than projected. While Alphabet grew its cloud business faster, it missed in search, spent more and burned cash. It shows that investors want evidence of sustainable growth, stronger cash generation and better shareholder returns.