AI Billions, But No Growth? Microsoft and Alphabet

TVS News AI, editorially supervised, presents AI Billions, But No Growth? Microsoft and Alphabet.

On Wednesday, Alphabet shares temporarily lost more than 10 percent. As a result, the market value of the Google parent fell by more than $400 billion. Only a few hours later, Microsoft received a different reception: Its shares rose by 3.5 percent. The difference lay in the quarterly figures – and in how investors assessed the billions being spent on AI investments.

$18.6 Billion Against a Loss of $7.66 Billion

Microsoft generated $18.6 billion in free cash flow, twice as much as expected. Investing.com financial analyst Jesse Cohen described the figures as “as flawless as anything this size of company can deliver.” Microsoft CFO Amy Hood called the quarter a good start to the 2026/2027 fiscal year. According to Hood, all key metrics exceeded market expectations.

The success was particularly evident in the cloud division: Microsoft Azure’s growth accelerated to 48 percent, after rising by 43 percent in the previous quarter. This meant growth.

But the money invested does not automatically lead to growth.

Alphabet was not spared from the growth challenge. Its Google Cloud division did double its revenue during the reporting period. However, its negative free cash flow nearly doubled as well, exceeding analysts’ forecast of around $9 billion by roughly 250 times. Alphabet slipped into the red operationally and recorded a loss of $7.66 billion. Weaker advertising revenue also disappointed the company’s overall revenue.

The comparison is therefore clear: Microsoft generated free cash flow of $18.6 billion from its cloud business, while Alphabet lost $7.66 billion operationally, with free cash flow of around negative $9 billion. Both companies are investing in the same future technology. For now, however, their balance sheets look very different.

Microsoft Keeps Its AI Investments $5 Billion Below Plan

Microsoft invests $45.2 billion, around $5 billion less than planned. Company spokesperson Jonathan Neilson explained that this was primarily due to delivery delays. The gap between actual spending and the company’s own plans therefore does not mean that Microsoft has pulled back its AI spending. It shows how heavily the planned expansion of data centers and AI infrastructure depends on delivery timelines.

The market nevertheless viewed this development positively. Microsoft shares rose by 3.5 percent in after-hours trading on Wall Street. The operating result and Azure’s pace of growth outweighed the gap to the investment plan during the session.

Microsoft also enjoyed a special status among investors: According to Tagesschau, the quarterly figures were seen as evidence against concerns that the expansion of AI infrastructure could prove to be a loss-making proposition in general. Although the company reinvested substantial sums, it also reported $18.6 billion in free cash flow.

Alphabet Plans $205 Billion – Amid Rising Costs

Alphabet’s planned investment path is larger. CFO Anat Ashkenazi reaffirmed the forecast that the company will invest up to $205 billion in expanding its AI infrastructure from 2026. Spending is expected to rise significantly next year. At the same time, the leasing of external computing capacity is weighing on margins.

Investors fear that massive depreciation charges could arise because the assets are unlikely to generate profits for the foreseeable future. This concern is also reflected in credit default swaps: The premiums for protection against defaults by large technology companies recently rose to record highs in some cases.

Alphabet therefore faces a concrete challenge. The company must finance the expansion of its AI infrastructure while advertising revenue is weakening and Google Cloud is growing faster, but the group as a whole is losing $7.66 billion. The market capitalization’s decline of more than $400 billion shows how sensitive investors are to this combination of investment and results.

The AI Boom Requires More Than $200 Billion in Debt

Financing is not an issue for Microsoft and Alphabet alone. Since the start of the year, Amazon, Alphabet, Meta and Oracle have issued US bonds worth significantly more than $200 billion in total. Meta also plans to place new shares with a total volume of just under $100 billion. An initial tranche of $37.5 billion was placed on Tuesday.

Oracle attempted on Wednesday to ease investors’ concerns with an optimistic forecast. Because of declining investments for the second half of the 2027/2028 fiscal year, the SAP rival forecast positive free cash flow. In the following year, the figure is expected to exceed the $30 billion mark.

The real test is therefore clear: Investment is a prerequisite, but not a result. Microsoft’s 48 percent Azure growth and $18.6 billion in free cash flow show the current success story. Alphabet’s $7.66 billion loss, negative free cash flow of around $9 billion and drop of more than 10 percent show the other side.

The underlying information comes from Tagesschau’s business reporting.