Alphabet Microsoft Earnings Split Divides Wall Street

Alphabet and Microsoft reported quarterly results on the same Wednesday evening, and the market treated them as opposite verdicts. Alphabet shares fell in after-hours trading while Microsoft shares rose, a gap that set the tone for the Alphabet Microsoft earnings split. Both companies are spending heavily to build data centers and buy processors for artificial intelligence, and both reported strong cloud growth. The difference was cash. Alphabet spent more than it generated, while Microsoft kept its spending inside what the business produced.

Alphabet's third-quarter revenue rose 25% to $127.6 billion, according to the company's results, but that came in below the $128.2 billion analysts polled by LSEG expected. Search advertising brought in $63.35 billion, short of the $64.96 billion consensus, and adjusted earnings per share came in at $2.67 against the $3.02 analysts expected. YouTube advertising came in at $11.2 billion, just under the $11.4 billion analysts expected. Google Cloud was the exception. Revenue there rose 103% to $30.7 billion, beating expectations, as demand for AI computing kept outrunning available capacity. The problem sat on the other side of the ledger. Alphabet spent $51.36 billion on property and equipment in the quarter, leaving free cash flow at negative $9.07 billion, the second quarter in a row in the red. The company also paused buybacks and raised money by issuing bonds and selling shares, according to its filing. Alphabet shares fell about 10% after hours. Investors read the Alphabet Microsoft earnings split as a question about funding.

Microsoft's steadier ledger

Microsoft's fiscal first-quarter results gave the Alphabet Microsoft earnings split its counterweight. Revenue reached $92.3 billion, up 19% from a year earlier and above the $90.7 billion analysts expected, according to the company. Adjusted earnings per share came in at $4.89, topping the $4.73 consensus. Azure revenue grew 48% to $33.17 billion, the first time Microsoft has disclosed the figure in dollars, and above the $32.32 billion analysts surveyed by StreetAccount expected. Microsoft also spent heavily. Capital spending and finance leases reached $45.2 billion in the quarter, yet free cash flow stayed positive at $18.63 billion. Shares rose about 4% after hours, according to CNBC, as investors rewarded a quarter in which growth came with cash to spare.

The contrast matters because both companies face the same bill. Data centers and processors cost money before they return it, and the Alphabet Microsoft earnings split shows investors now judging the buildout by cash generation as well as growth. Alphabet's cloud business grew more than twice as fast as Azure, yet its shares fell, because the spending behind that growth exceeded what operations produced. Microsoft's cloud grew more slowly, yet its shares rose, because the business still threw off cash after paying for expansion. Alphabet management has also acknowledged that newer AI search features earn money more slowly than traditional search, according to coverage of Alphabet's earnings call, which puts more weight on cloud growth to carry the quarter. Oracle had already tried to calm the same fears earlier in the session with a long-range forecast, according to market coverage.

What to watch next

Futures trading on Thursday morning carried the Alphabet Microsoft earnings split into the wider market. Nasdaq futures slipped after the reports, according to CNBC, while Dow futures held steadier, a split that mirrored the earnings themselves. The Federal Reserve had held interest rates steady the day before, leaving the market to wrestle with the AI spending question on its own. In Asia, Japan's Nikkei rose while South Korea's Kospi fell, according to market coverage.

The Alphabet Microsoft earnings split gets its next test when Amazon reports after the close on Thursday, with its cloud business and spending plans under the same scrutiny. Alphabet left its full-year spending forecast unchanged, according to its results, while Microsoft forecast continued Azure growth in the current quarter. Both companies have said demand for AI computing exceeds available capacity.

For now, the Alphabet Microsoft earnings split leaves a simple scoreboard for the rest of earnings season. Cloud growth still impresses, but the market paid up only where growth arrived with cash. Amazon's report will show whether that standard holds for a third cloud giant. If Amazon's cloud growth arrives with the same cash strain, the debate will sharpen.