Alphabet shares tumble 10% after $127.6 billion revenue miss; Microsoft rises 2.6% as Azure grows 48%

Alphabet and Microsoft received sharply different verdicts from investors after reporting their September-quarter earnings, with concerns over advertising growth, cash generation and rising artificial intelligence (AI) expenditure weighing on Google’s parent, while Microsoft won a more favourable response on stronger-than-expected results and sustained demand for its cloud services.

Alphabet shares fell around 10% in after-hours trading on Wednesday after the company reported revenue below Wall Street estimates and a decline in net profit. Microsoft shares, in contrast, rose around 2.6% after the software maker exceeded analysts’ forecasts for revenue and earnings per share.

Alphabet reported consolidated revenue of $127.6 billion for the third quarter of calendar year 2026, up 25% year-on-year but below analysts’ expectations of about $128.2 billion. Net income fell 25% to $26.2 billion from $35 billion a year earlier.

Microsoft reported revenue of $92.3 billion for the first quarter of fiscal 2027, ended September 30, up 19%. Revenue exceeded the $90.6 billion expected by analysts, while adjusted earnings per share of $4.89 beat the $4.72 forecast.

Advertising weakness weighs on Alphabet

Alphabet’s Google Cloud revenue more than doubled to $30.7 billion, driven by demand for AI infrastructure and enterprise solutions. Its cloud backlog reached $561 billion, indicating substantial contracted demand.

However, Google advertising revenue of $82 billion fell short of analysts’ estimates by about $1.4 billion. Search and other revenue rose 12% to $63.4 billion, while YouTube advertising revenue increased 9% to $11.2 billion.

Alphabet’s net income was also affected by an $8.7 billion loss on equity investments. The company reported negative free cash flow of $9.1 billion as expenditure on AI and cloud infrastructure continued to weigh on cash generation, raising questions about how quickly these investments will deliver returns.

Microsoft cloud demand supports earnings

Microsoft Cloud revenue increased 30% to $63.9 billion, while Azure revenue grew 48%. Its commercial remaining performance obligation, representing contracted revenue yet to be recognised, climbed 73% to $677 billion.

Operating income rose 21% to $45.9 billion, while GAAP net income increased 32% to $36.6 billion. However, Microsoft’s year-ago results included a benefit from its OpenAI investments. Excluding investment-related effects, net income grew 18% to $36.4 billion.

Microsoft’s capital expenditure reached $45.2 billion in the September quarter, reflecting continued investment in computing capacity. The company forecast December-quarter revenue of $96 billion to $97.1 billion, signalling expectations of continued growth.