Alphabet Spent More Than It Earned; Microsoft Kept Making Cash

Alphabet reported a record quarter on the evening of October 28. Revenue rose 25% to $127.6B, and Google Cloud revenue doubled in a year.

Microsoft, reporting at the same hour, also beat expectations. In after-hours trading Microsoft rose 4% and Alphabet fell more than 6%. What separated the two was not revenue but the cash leaving the building.

Google Cloud Beat Forecasts, Free Cash Flow Turned Negative

Google Cloud revenue reached $30.7B, against $29.6B expected by analysts according to LSEG data. The unit's operating income rose from $3.6B to $11.1B in a year.

The problem sat on the spending side. Alphabet bought $51.4B of buildings, servers and equipment, while operations brought in $42.3B. Free cash flow was negative $9.07B, versus the $36M outflow Reuters cited as the estimate.

Earnings per share came in at $2.12 against a $3.00 consensus compiled by 24/7 Wall St. Most of the gap came from an $8.7B loss on the company's equity investments.

The balance sheet shows how the hole was filled. Alphabet's long-term debt was $46.5B at the end of 2025 and $125.1B on September 30. A week earlier, Meta's capital spending had also exceeded the cash it earned.

Alphabet's last six months show the expectations the stock carried into this report:

Part of Microsoft's Spending Sits in Lease Contracts

Microsoft's revenue rose 19% to $92.3B. Azure grew 48%, above the company's own guidance range of 44-45%.

Cash purchases of property and equipment were $39.4B, and operating cash flow was $58.0B. Headlines said capex came in $6B below the forecast.

That comparison is incomplete. Bloomberg's $45.9B consensus included leased equipment, while the $39.4B cash line does not. Including leases, spending was $45.2B, according to Reuters.

The market did not weigh the two companies' spending on the same scale. It saw one company's spending in its cash account, and part of the other's in lease contracts.

Why Free Cash Flow Does Not See Leases

Free cash flow is operating cash flow minus capital spending. How a lease enters that calculation becomes clear when the same server is acquired two ways.

Applied to Microsoft, the gap narrows but does not disappear. Had the roughly $5.8B in leased assets been paid in cash, free cash flow would have been $12.8B instead of $18.6B.

Microsoft's operating cash flow is $15.7B larger than Alphabet's. Leasing explains part of the difference between the two companies, not all of it.

Alphabet's Cash Pile Is Still Deep; Microsoft's Lease Load Is Growing

Alphabet held $265.1B in cash and marketable securities as of September 30. Its trailing twelve-month free cash flow is still a positive $19.7B.

Not every line at Microsoft was positive. According to ZeroHedge, commercial bookings fell 12% from a year earlier, and the $677B contracted revenue backlog was flat since June.

By the same account, leases Microsoft had signed but not yet started totaled $329.1B on June 30. A quarter earlier, the figure was $196.6B.

The last three months of the Nasdaq 100 fund show the footing on which big tech entered earnings week:

What It Means for Investors

• The market priced how Alphabet's cloud growth is consuming cash, not the growth itself; it has not yet priced Microsoft's lease obligations.
• Continued spending supports orders at suppliers such as Nvidia, Broadcom and Micron; debt financing weighs on the cloud companies' own shares.
• Amazon reports on October 29 and will show whether the third big cloud provider's operating cash covers its spending.
• The risk to the thesis is rates: the Fed held at 3.75-4% with two members favoring a hike, and costlier debt erodes returns on borrowed capacity.

This article is based on Alphabet's and Microsoft's earnings releases dated October 28, 2026. Analyst estimates and after-hours moves are taken from Reuters reports. The per-share earnings estimate was compiled by 24/7 Wall St. Microsoft's lease obligations and bookings data come from ZeroHedge's account and were not separately verified against a company filing. The Fed decision is taken from Yahoo Finance's live coverage.