Microsoft Gets Rewarded and Alphabet Gets Punished After Earnings

Keypoints:

• Microsoft's quarterly revenue rose 19% to $92.3 billion and Azure grew 48% to $33.17 billion
• Alphabet's revenue rose 25% to $127.6 billion but missed expectations, and adjusted profit missed too
• Google Cloud revenue more than doubled, up 103% to $30.7 billion
• Alphabet burned about $9.1 billion in free cash flow, while Microsoft generated $18.6 billion
• Microsoft shares rose about 2% to 4% after hours, and Alphabet shares fell about 8% to 10%

Two of the world's biggest tech companies reported earnings on Wednesday, and investors treated them in opposite ways. Both showed huge cloud growth. The difference was money.

Microsoft's results beat Wall Street's targets. Revenue climbed 19% to $92.3 billion and adjusted earnings per share came in at $4.89, above the roughly $4.72 analysts expected. Azure, its cloud platform, grew 48% to $33.17 billion, ahead of the 45% Microsoft had forecast in July. 

It was also the first time the company reported Azure revenue in dollars. On top of that, Microsoft generated $18.6 billion in free cash flow, which is the cash left after paying for its spending. Its capital spending also came in about $5 billion below what analysts expected.

Alphabet's quarter looked strong in some places and weak in others. Total revenue rose 25% to $127.6 billion, but that was a little short of the $128.2 billion analysts wanted. Adjusted earnings per share of $2.67 missed the $3.02 forecast. 

The advertising business was the main gap, coming in about $1.4 billion light. Google Cloud was the bright spot, with revenue up 103% to $30.7 billion and operating income of $11.1 billion. CEO Sundar Pichai said the company is now on a half trillion dollar revenue run rate, and that the Gemini app has reached one billion users.

The sore spot was cash. Alphabet burned about $9.1 billion in free cash flow as it spent heavily on cloud capacity and AI research. That is what scared investors and sent the shares sliding.

The takeaway is simple. For months the market has cheered AI spending. Now it is asking who can pay for that spending. Microsoft showed it can fund its build-out and still produce cash. The alphabet showed demand is exploding, but the bills are growing even faster. It is a reminder that fast growth does not automatically calm investors when cash is flowing out the door.