Key points
- Google Cloud more than doubled, but Alphabet's search revenue fell short
- Alphabet sold $12.4 billion of new stock and bought back none
- Microsoft's Azure grew 48% and its cash still covers its spending
Alphabet (GOOGL) reported third-quarter revenue of $127.6 billion on October 28, up 25% from a year earlier but a little below the $128.2 billion analysts expected. Microsoft (MSFT) reported the same afternoon and beat, with revenue of $92.3 billion against an expected $90.7 billion. Alphabet shares fell nearly 10% in after-hours trading as of 7:30 p.m. ET, while Microsoft shares rose about 2%.
Both companies' cloud businesses came in ahead of forecasts. Google Cloud revenue rose 103% to $30.7 billion, above the $28.7 billion analysts expected, CNBC reported. Microsoft's Azure grew 48%, and for the first time Microsoft gave Azure's revenue in dollars: $33.2 billion.
Last week I lined up the cash flow statements of the four biggest AI spenders, and Microsoft was the only one whose business still brought in more cash than it spent on property and equipment. Microsoft was still ahead on that measure in the July-to-September quarter, while Alphabet's gap got wider. Amazon (AMZN) reports on October 29.
Where did Alphabet fall short?
Search revenue also fell short of expectations. Revenue from Google Search and related products rose 12% to $63.4 billion, below the $65.0 billion analysts expected, according to CNBC. YouTube ads brought in $11.2 billion. All of Google's consumer and advertising businesses together, which Alphabet calls Google Services, grew 11% to $96.3 billion, according to the company's earnings release.
Operating profit, what's left from sales after the costs of running the business, rose 30% to $40.6 billion. That was below the $43.2 billion forecast compiled by FactSet.
Profit per share came to $2.12, against the $3.02 analysts polled by LSEG expected, though CNBC said it wasn't immediately clear the two figures were comparable. Alphabet's stakes in other companies weighed on profit. It recorded an $8.7 billion loss on those investments this quarter, and the release says that loss lowered profit by $6.7 billion, or 55 cents a share. A year ago the same line was a $10.7 billion gain. Profit for common shareholders fell to $26.2 billion from $35.0 billion.
Chief executive Sundar Pichai put the cloud first. "Google Cloud revenues grew 103%, powered by huge demand for our AI infrastructure and AI solutions. We're also seeing strong demand for our TPU systems across a wide range of customers," he said in the release. The release also says sales of TPU systems, built on Google's own AI chips, were "a meaningful contributor" to the cloud's growth. OpenAI plans to buy Google's AI chips, CNBC reported on Wednesday. Pichai also said the Gemini app has reached one billion users.
The cloud business is also far more profitable than a year ago. Google Cloud's operating profit more than tripled to $11.1 billion from $3.6 billion, a margin of about 36%. The release now says the unit's product revenue comes "primarily from the sale of TPU systems." Before the report, TD Cowen estimated a 20% operating margin on TPUs Google sells to outside customers.
Thomas Kurian, who runs Google Cloud, made his first public earnings remarks on the call, CNBC reported. "We are seeing extraordinary demand and strong growth from both AI labs, capital markets, financial service institutions, and enterprises," he said.
Alphabet spent $9.1 billion more than it brought in
The cash flow stood out to me most. Alphabet's business brought in $42.3 billion of cash in the quarter, and it spent $51.4 billion on property and equipment, much of it for the data centers, servers, and chips behind its AI push. That leaves a cash shortfall of $9.1 billion. Analysts had expected a shortfall of $2.7 billion, according to CNBC, even though spending came in below the $55.1 billion they'd forecast.
It's the second shortfall in a row, after $5.9 billion in the April-to-June quarter. Over the past 12 months the company still has $19.7 billion left over, by its own count, because the two quarters before that were positive.
The spending also shows up in profit over time. Depreciation, the cost of equipment spread over the years it's in use, rose 49% to $8.4 billion from $5.6 billion a year earlier.
So where does the money come from? The release answers that directly. During the quarter, Alphabet sold $4.3 billion of new Class A shares and $8.1 billion of new Class C shares through what it calls an at-the-market program, which lets a company sell new stock gradually at whatever the market price is. It has $27.6 billion of room left in that program. It also sold $28.7 billion of new bonds. It bought back no stock, after spending $11.5 billion on buybacks in the same quarter last year.
Added up for the first nine months of 2026, the cash flow statement shows $85.2 billion raised from new debt and $61.9 billion from selling common and preferred stock. Long-term debt stood at $125.1 billion on September 30, up from $46.5 billion at the end of 2025. Alphabet also held $265.1 billion in cash and marketable securities, and it declared a quarterly dividend of 22 cents a share.
What did Microsoft report?
Microsoft's adjusted profit per share was $4.89, ahead of the $4.73 analysts polled by LSEG expected, according to CNBC. Adjusted figures leave out Microsoft's gains and losses on its OpenAI investment, which added $207 million to profit this quarter. Counting that, profit was $36.6 billion, or $4.92 a share, up 32%, according to Microsoft's release.
This was Microsoft's first report under its new two-part structure. Agents and Infra, which holds Azure and the Microsoft 365 business software, grew 25% to $76.8 billion. Devices and Consumer, which holds Windows, Xbox, and search advertising, slipped 3% to $15.5 billion. Revenue from Windows licenses sold to PC makers and from Microsoft's own devices fell 22%, which CNBC tied to higher memory and storage costs pushing up prices.
Azure's $33.2 billion was ahead of the $32.3 billion analysts surveyed by StreetAccount expected, CNBC reported.
Is Microsoft's cash cushion still there?
Yes, though it's smaller. Microsoft's business brought in $58.0 billion in cash in the July-to-September quarter, and it spent $39.4 billion on property and equipment. That leaves $18.6 billion, down 27% from a year earlier.
Microsoft's own spending figure is bigger than that $39.4 billion, because it also counts finance leases, long-term leases on data centers that it treats much like purchases. On that basis Microsoft spent $45.2 billion, below the $50.7 billion analysts surveyed by StreetAccount had projected, CNBC reported. Microsoft returned $10.2 billion to shareholders through dividends and buybacks during the quarter.
Separately, Microsoft offered buyouts to about 60,000 employees on Monday.
What did the two companies say about spending?
Alphabet kept its 2026 capital spending forecast at $195 billion to $205 billion, the range it set in July. "We continue to expect our capex to increase significantly in 2027, and will provide further details on our Q4 call," finance chief Anat Ashkenazi told analysts on Alphabet's call, CNBC reported.
Microsoft finance chief Amy Hood said on her company's call that capital spending, including finance leases, would be more than $50 billion in the October-to-December quarter. That would bring Microsoft's spending for calendar 2026 to about $170 billion, which she tied to delayed deliveries of data center capacity from outside providers. Hood expects spending to speed up in the first half of 2027, and she said Microsoft expects "to continue to remain free cash flow positive" in its fiscal year that ends in June 2027.
Hood also forecast Azure growth of 49% to 50% in the October-to-December quarter, excluding currency swings, above the 45.1% analysts surveyed by StreetAccount expected, CNBC reported. She forecast total revenue of $96 billion to $97.1 billion, against the $95.6 billion analysts polled by LSEG expected.
We'll add all three companies' July-to-September figures to our cash flow table once Amazon's filing lands.
Reported figures come from Alphabet's and Microsoft's October 28 earnings releases. Analyst estimates are LSEG, FactSet, and StreetAccount figures as reported by CNBC. After-hours share moves are as of 7:30 p.m. ET and compare with each stock's regular-session close. Microsoft's outlook comes from its earnings call.
