Technology

Earnings Night Verdict: Microsoft’s Azure Beat, Google Cloud Doubled — and Alphabet’s Ad Engine Missed

The AI test the market set for Wednesday night produced a split result. The cloud divisions — the part of Big Tech that sells AI — beat everything in sight. The advertising divisions — the part that pays for AI — missed at Alphabet. And in the night's quietest signal, both companies spent billions less on data centres than forecasters expected.

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AI-generated illustration of two giant cloud data centres side by side at night with glowing server racks, a bright rising growth chart above one and a dimmer advertising billboard above the other

Highlights

  • Microsoft’s Azure revenue grew 48% to $33.17 billion in the September quarter, topping Visible Alpha estimates of $32.84 billion; Microsoft shares rose about 4% in extended trading
  • Microsoft’s capital expenditure was $45.2 billion, below the roughly $50 billion it had projected, and free cash flow of $18.6 billion more than doubled the $8.54 billion analysts expected
  • Alphabet’s Google Cloud revenue grew 103% to around $31 billion, beating forecasts of about $29 billion
  • But Alphabet’s total revenue of about $127.6 billion narrowly missed estimates of about $127.9 billion, EPS fell to $2.12 from $2.87 a year earlier on a roughly $8.7 billion loss on equity securities, and both Search (about $63 billion) and YouTube ads (about $11.2 billion) missed expectations
  • Alphabet’s capex of about $51 billion also came in below the roughly $56 billion expected — Amazon completes the trio when it reports on Thursday, October 29

Microsoft: the clean beat

Microsoft surpassed expectations for quarterly cloud revenue on Wednesday, signalling that its hefty AI investments were paying off at a time when Wall Street grows increasingly wary of Big Tech’s debt-fuelled spending (Reuters). Revenue at Azure grew 48% to $33.17 billion in the first quarter ended September, topping Visible Alpha’s estimates of $32.84 billion, and up from $29.4 billion in the prior quarter (Reuters). Shares rose about 4% in extended trading; the stock had risen about 9% this year through Wednesday’s close (Reuters).

The numbers beneath the headline were as important. Capital expenditure stood at $45.2 billion, up from $34.9 billion in the year-ago period but below Microsoft’s own projection of $50 billion for the quarter, and free cash flow came in at $18.6 billion against analysts’ expectations of $8.54 billion (Reuters). Last month Microsoft decided to disclose Azure revenue in dollars rather than just growth rates, offering a clearer picture of how its cloud business stacks up against Amazon Web Services and Google Cloud (Reuters) — and the first full test of that transparency flattered it. This was the test the preview set: whether cloud growth could outrun the AI bill. For Microsoft, on this evidence, it can.

Alphabet: the future beat, the present missed

Google Cloud doubled and beat — but the advertising businesses that pay for Alphabet’s AI ambitions came up short (InvestingLive). Google Cloud revenue grew 103% to around $31 billion, beating forecasts of about $29 billion (InvestingLive). Against that, revenue of around $127.6 billion narrowly missed estimates of about $127.9 billion; earnings per share of $2.12, down from $2.87 a year earlier, were weighed by a net loss of around $8.7 billion on equity securities; Search and other revenue of around $63 billion and YouTube ads of around $11.2 billion both missed expectations; and operating income of around $41 billion missed forecasts of about $43 billion (InvestingLive). Capex of around $51 billion came in below the roughly $56 billion expected (InvestingLive).

AI-generated illustration of rows of server racks inside a vast data centre with blue light trails running along the ceiling

The capex underspend is a story in itself

Both companies spending less than forecast on infrastructure is the detail chip markets will chew on. Capex came in about $4.4 billion below forecast at Alphabet after Microsoft also underspent earlier in the evening, so traders may question the near-term pace of hyperscaler orders for AI chips and data centre equipment (InvestingLive). The scale remains vast — Big Tech is expected to pump more than $700 billion this year into building data centres and securing the hardware and energy needed to run AI (Reuters), and Reuters has reported nearly $1.7 trillion in combined backlog at the three cloud giants against planned 2026 spending of as much as $600 billion (Tech Insider). But the direction of the surprise matters after a week in which shrinking cash flows, rising debt loads and record-high costs to insure Meta’s debt against default had already rattled the sector (Reuters) — the same anxiety that followed Nvidia’s $3 billion Muse AI deal with Meta and Meta’s own negative free cash flow last week.

AI-generated illustration of a smartphone screen showing a search bar and a video play button, dimmed, beside a brightly lit rising bar chart

What this earnings night actually tells us

First, the AI trade has split in two. Selling AI capacity (Azure +48%, Google Cloud +103%) is booming beyond forecast; the legacy engines funding it are no longer guaranteed to grow into the story — Alphabet’s Search and YouTube misses are the first clear evidence this cycle (InvestingLive).

Second, discipline is the new growth metric. The two most applauded numbers of the night were not revenue lines — they were Microsoft’s $18.6 billion free cash flow against an $8.54 billion estimate, and two capex prints below forecast (Reuters; InvestingLive). A market that spent two years demanding bigger AI budgets is starting to reward smaller ones.

The bottom line: Microsoft passed the AI test cleanly; Alphabet passed the future half and stumbled on the present. Amazon, reporting Thursday, now carries the tiebreaker — and after tonight, the question put to it will be less “how fast is AWS growing?” than “what did the growth cost?”