Two of the companies spending the most on artificial intelligence reported earnings within hours of each other on Wednesday, and investors reacted in almost opposite ways.
Microsoft reported revenue of 92.3 billion dollars for the quarter ended September 30, up 19% from a year earlier, with operating income of 45.9 billion dollars, up 21%. Net income rose 32% on a GAAP basis to 36.6 billion dollars, and diluted earnings per share came in at 4.92 dollars. Chief executive Satya Nadella pointed to the company's cloud business, Azure, which grew 48% during the quarter, as a central driver of the results. Microsoft generated 18.6 billion dollars in free cash flow, though that figure was down 27% from a year earlier after the company spent 39.37 billion dollars in cash capital expenditures, with a broader capex figure, including finance leases, of 45.2 billion dollars. Shares rose as much as 6% at one point after the report.
Alphabet told a different story. Its Google Cloud division more than doubled its revenue during the quarter, a strong number on its own, but the company's overall revenue and earnings per share missed Wall Street's expectations. Alphabet's AI-related capital spending came in around 44.9 billion dollars for the quarter, and the heavy investment pushed free cash flow negative, with the company burning through roughly 9.1 billion dollars and its debt climbing to about 98.2 billion dollars. Alphabet shares fell more than 10% in after-hours trading. Heading into the report, Alphabet stock had been up just 3% for the year, a quiet performance compared with Microsoft's roughly 10% year-to-date gain.
The divergence follows a similar pattern that played out the previous week, when Meta reported third-quarter revenue of 64.6 billion dollars, up 26% from a year ago and ahead of estimates, with strong guidance for the current quarter. Even so, Meta shares fell as investors focused on the company's plan to spend as much as 145 billion dollars on AI in 2026, a commitment so large that it raised questions about how quickly that spending will pay off.
Amazon is still due to report in this earnings cycle, and investors will be comparing its cloud and AI spending figures against Microsoft's and Alphabet's to gauge whether the broader AI investment boom is paying off.
Why did Alphabet's stock fall even though Google Cloud revenue more than doubled?
Alphabet's overall revenue and earnings per share came in below analysts' expectations, and its heavy AI spending pushed free cash flow negative, which outweighed the strong cloud growth in investors' eyes.
Why did Microsoft's stock rise instead?
Microsoft's cloud business, Azure, grew 48% and the company still generated positive free cash flow despite heavy spending, which reassured investors about its AI investments.