Microsoft and Alphabet Cloud Earnings Beat Forecasts
Microsoft and Alphabet both beat cloud expectations as Azure grew 48 percent and Google Cloud doubled, easing fears that AI spending is outrunning returns.
Microsoft and Alphabet reported quarterly results after US markets closed on October 28, and both delivered the same headline message: their cloud businesses are growing faster than expected. Microsoft's Azure accelerated to 48 percent growth, while Google Cloud more than doubled its revenue. The results gave investors fresh evidence that heavy spending on AI infrastructure is turning into real sales, even as both companies keep pouring billions into data centers.
Microsoft: Azure accelerates to 48 percent
Microsoft reported revenue of 92.28 billion dollars for its fiscal first quarter, up 19 percent from a year earlier and ahead of the roughly 90.6 billion dollars analysts expected. Adjusted earnings per share came in at 4.89 dollars, beating expectations of about 4.71 dollars. Reported profit rose to 36.63 billion dollars, up from 27.75 billion dollars a year earlier. The star of the report was Azure. The cloud platform grew 48 percent in constant currency, up from 42 percent in the previous quarter and above the roughly 45 percent analysts had forecast. Azure revenue reached about 33.2 billion dollars, and total Microsoft Cloud revenue climbed 30 percent to 63.9 billion dollars. Microsoft also reported its results under a new reporting structure, with a new Agent and Infra segment contributing 76.8 billion dollars in revenue. The spending side drew attention too. Microsoft recorded 45.2 billion dollars in capital spending and finance leases during the quarter, below the roughly 50.7 billion dollars analysts had projected. Cash capital spending of about 39.4 billion dollars was also well short of forecasts. Faster Azure growth on lower-than-expected spending helped the case that Microsoft is getting more revenue out of the capacity it has already built. Microsoft shares rose about 4 percent in after-hours trading.
Alphabet: Google Cloud doubles, but ads miss
Alphabet reported third-quarter revenue of 127.6 billion dollars, up 25 percent from a year earlier, just short of the roughly 127.9 billion dollars analysts expected. Operating income rose 30 percent to 40.6 billion dollars. Google Cloud was the standout. Revenue more than doubled to 30.71 billion dollars, up 103 percent and ahead of the roughly 29.6 billion dollars analysts forecast. Reuters reported that enterprise demand for cloud-based AI training and inferencing stayed strong through the year, keeping data center use high and pushing providers to expand capacity faster. The rest of the report was more mixed. Search revenue of about 63 billion dollars and YouTube advertising of about 11.2 billion dollars both missed expectations, and Alphabet's shares fell more than 6 percent in extended trading. Net income fell to 26.2 billion dollars, with diluted earnings per share of 2.12 dollars down from 2.87 dollars a year earlier, after an 8.7 billion dollar net loss on equity securities. Alphabet also reported negative free cash flow of 9.07 billion dollars, a much larger cash burn than analysts expected, as it spends heavily to add cloud capacity.
What the results mean for the AI trade
Together, the two reports answer part of the question investors have been asking all year: is AI spending paying off? The cloud numbers say yes, at least for the companies selling the computing power. Both Microsoft and Alphabet beat cloud forecasts by a clear margin, and both are still expanding capacity to meet demand from businesses moving AI workloads into the cloud. But the results also show the trade-offs. Alphabet's advertising miss and large cash burn remind investors that the AI buildout is expensive and that the older profit engines still matter. Microsoft's lower-than-expected capital spending may ease some worry, but both companies face the same test in the months ahead: turning today's cloud growth into lasting profit while spending keeps climbing. Attention now turns to Amazon, which reports its own quarterly results on October 29. Its cloud unit, Amazon Web Services, is the largest of the three, and its numbers will complete the picture of whether the AI infrastructure boom is still accelerating.
Sources
- The Wall Street Journal - https://www.wsj.com/tech/microsoft-msft-q1-earnings-report-2027-stock-5809ce40 - Reuters - https://www.reuters.com/business/alphabets-google-cloud-unit-beats-quarterly-revenue-estimates-steady-ai-demand-2026-10-28/