Microsoft and Alphabet Earnings Today: Can AI Cloud Growth Outrun Surging Capex?

Key Takeaways

• Microsoft and Alphabet will report earnings after the US market closes on October 28, with Azure and Google Cloud growth likely to determine the initial stock reactions.
• Wall Street expects Microsoft to report approximately $90.6 billion in revenue and adjusted earnings of $4.71 per share.
• Alphabet is forecast to deliver roughly $128 billion in revenue and earnings of about $3 per share, supported by nearly 95% growth at Google Cloud.
• Investors want evidence that accelerating cloud revenue can justify the companies’ combined hundreds of billions of dollars in AI infrastructure spending.
• Guidance on capital expenditure, free cash flow, capacity constraints and AI demand may matter more than headline earnings beats.

Microsoft and Alphabet will report quarterly earnings after Wednesday’s closing bell, giving investors a critical test of whether rapid AI cloud growth can keep pace with increasingly expensive data-center investments.

The results arrive as Wall Street becomes more selective toward artificial intelligence spending. Investors remain optimistic about long-term demand for AI computing, but they are demanding clearer evidence that new data centers, chips and power infrastructure can produce sustainable revenue and free cash flow.

Microsoft is scheduled to publish its fiscal first-quarter 2027 results after the market closes. Its earnings call will begin at 5:30 p.m. Eastern Time. Alphabet will report third-quarter 2026 results during the same period, followed by its conference call at 4:30 p.m. Eastern Time.

Microsoft and Alphabet Earnings Forecasts

Both companies are expected to report double-digit total revenue growth, but their cloud divisions are forecast to expand much faster.

Microsoft’s revenue is projected to rise approximately 17% from a year earlier, while Alphabet’s revenue is expected to increase about 25%.

Microsoft Earnings Preview

Wall Street expects Microsoft to report approximately $90.6 billion in fiscal first-quarter revenue, near the upper end of management’s guidance range of $89.85 billion to $90.95 billion.

Adjusted earnings are forecast at approximately $4.71 per share, compared with $4.13 in the year-earlier quarter.

The most closely watched number will be Azure. Visible Alpha estimates suggest that Azure revenue could grow 47.7%, accelerating from approximately 42% in the previous quarter. Microsoft previously guided for constant-currency Azure growth of around 44% to 45%.

Analysts expect Azure to generate approximately $33.1 billion in quarterly revenue. For the first time, Microsoft plans to disclose Azure’s revenue in dollars instead of reporting only its percentage growth rate.

The change should make it easier for investors to evaluate the size of the business and calculate the return Microsoft is generating from its AI infrastructure investments. Restated figures show that Azure’s annual revenue increased from $72.61 billion in fiscal 2025 to $101.94 billion in fiscal 2026.

Microsoft’s AI Spending Is Still Rising

Accelerating Azure growth is coming at a substantial cost.

Microsoft recorded approximately $41 billion in capital expenditure during its previous quarter, representing an increase of about 70% from a year earlier. Roughly two-thirds of that spending went toward shorter-lived assets, primarily CPUs and GPUs used to support cloud and AI services.

Management indicated that fiscal first-quarter capital expenditure could approach $50 billion. That would place Microsoft on pace for one of the largest annual infrastructure budgets in corporate history.

Investors will therefore focus on several questions:

• Is demand still exceeding Microsoft’s available AI computing capacity?
• Can Azure maintain growth above 40% as its revenue base expands?
• Is Microsoft 365 Copilot adoption accelerating beyond its 30 million paid seats?
• How quickly can new data centers begin generating revenue?
• Will depreciation, energy and chip costs place additional pressure on cloud margins?

Microsoft said Azure surpassed $100 billion in annual revenue during fiscal 2026, while Microsoft 365 Copilot exceeded 30 million paid subscriptions. These figures provide evidence that AI demand is translating into sales, but the market will want to see continued acceleration.

Microsoft’s New Reporting Structure

Microsoft will also introduce a new financial reporting structure with two principal divisions: Agents and Infra, and Devices and Consumer.

Agents and Infra will combine cloud infrastructure, business software and AI-related products. Devices and Consumer will include Windows, gaming, advertising and consumer hardware.

Some products previously included in Azure, such as GitHub cloud services and Security Copilot, have been moved into Microsoft 365 cloud. The narrower Azure definition may complicate comparisons with earlier quarters, even as the new dollar-revenue disclosure provides greater transparency.

Investors should therefore distinguish between changes caused by actual business performance and those resulting from the reporting reorganization.

Alphabet Earnings Preview

Alphabet is expected to report third-quarter revenue of approximately $128 billion, up around 25% from a year earlier. Earnings are forecast at approximately $2.97 to $3.03 per share.

Google Cloud is likely to be the company’s fastest-growing major business. LSEG estimates point to revenue of approximately $29.6 billion, representing growth of about 95% from the same period last year.

That would follow an 82% increase in the second quarter, when Google Cloud revenue reached $24.8 billion. Demand for AI infrastructure, Gemini products, data analytics and cloud security services drove the expansion.

Alphabet ended the second quarter with approximately $514 billion in Google Cloud remaining performance obligations, providing substantial visibility into future revenue. However, the company must still build enough infrastructure to fulfil those contracts.

Can Google Cloud Justify $200 Billion in Capex?

Alphabet increased its 2026 capital-expenditure forecast to between $195 billion and $205 billion, up from its previous range of $180 billion to $190 billion.

The company spent $44.9 billion during the second quarter alone, more than double the amount invested a year earlier. Most of the money is being directed toward servers, Google-designed Tensor Processing Units, GPUs, networking equipment and data centers.

The investment is helping Google Cloud gain business from companies deploying generative AI. Alphabet has also begun recognizing revenue from sales of TPU systems, expanding its competition with traditional semiconductor and cloud-infrastructure providers.

Nevertheless, higher capital expenditure has placed pressure on free cash flow. Investors will watch whether Alphabet raises its spending guidance again and whether management can show that Google Cloud’s expanding backlog will generate adequate returns.

A quarter of nearly 95% cloud growth could support the spending strategy. Slower growth combined with another increase in capital expenditure, however, could revive concerns that infrastructure costs are rising faster than monetization.

Google Search Faces a New AI Test

Alphabet’s advertising business remains much larger than Google Cloud and continues to generate most of the company’s profit.

Google Search revenue is expected to grow approximately 14.7%, slowing from 16.8% in the previous quarter. Investors will examine whether AI chatbots and consumer agents are beginning to affect search volumes or advertising demand.

Competition has increased as OpenAI, Anthropic and Meta introduce tools that answer questions and perform tasks without requiring users to visit conventional search-result pages.

Alphabet is responding by integrating Gemini and AI-generated summaries throughout Google Search. Management must demonstrate that these products can improve user engagement without reducing advertising revenue or increasing computing costs too quickly.

YouTube advertising, subscriptions and Google One will also be important. Growth across these businesses could reduce Alphabet’s dependence on traditional search advertising while strengthening the broader Gemini ecosystem.

The AI Capex Debate

Microsoft and Alphabet are part of an industry-wide infrastructure expansion that also includes Amazon, Meta, Oracle and major AI model developers.

Microsoft, Alphabet and Amazon could collectively invest as much as $600 billion during 2026. Their combined contractual backlogs approach $1.7 trillion, indicating strong customer demand but also creating substantial obligations to build additional computing capacity.

The central earnings question is no longer whether companies are spending on AI. It is whether the resulting revenue and cash flow are arriving fast enough to justify that spending.

A positive outcome would include:

• Accelerating Azure and Google Cloud growth
• Stable or improving cloud operating margins
• Strong AI-related backlog and customer commitments
• Capital expenditure that remains within existing guidance
• Evidence that new infrastructure is entering service quickly
• Resilient free cash flow despite higher investment

Warning signs would include slower cloud bookings, further capex increases, higher depreciation expenses, margin pressure or indications that data-center construction is progressing faster than customer adoption.

What Could Move MSFT and GOOGL Stock?

Microsoft shares are likely to respond most strongly to Azure revenue, fiscal second-quarter guidance and the company’s capex outlook.

An Azure growth rate near or above 48%, combined with evidence of improving capacity, could support MSFT stock. Growth closer to management’s 44% to 45% guidance may still be respectable, but investors could react negatively if capital expenditure exceeds $50 billion or free cash flow weakens more than expected.

For Alphabet, Google Cloud growth near 95% would reinforce the company’s position as the fastest-growing major cloud provider. Strong Search revenue would also ease concerns that generative AI is disrupting Google’s core business.

The greatest risk for GOOGL stock may be another increase in the company’s $195 billion to $205 billion capital-expenditure forecast. Recent technology-sector reactions suggest investors are increasingly willing to punish companies that raise AI spending without providing an equally strong revenue outlook.

Microsoft and Alphabet do not need to prove that their entire AI investment cycle will be profitable in one quarter. They do, however, need to demonstrate that cloud revenue, backlog and customer adoption are increasing fast enough to keep the investment case intact.

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