Alphabet Falls, Microsoft Rises on Earnings

Investors reacted sharply to the third-quarter financial results from Alphabet and Microsoft on Thursday.

Alphabet shares dropped approximately 10% during premarket trading. Microsoft stock gained nearly 4% in the same period. This divergence occurred as traders evaluated the companies' spending habits and cash flow. If Alphabet closes down more than 9.77%, it will record its worst post-earnings performance since its 2004 initial public offering. Nasdaq-100 futures also declined by more than 1% early in the session.

The financial gap between the two companies is evident in their cash flow numbers. Alphabet reported negative free cash flow of $9.07 billion for the quarter. Analysts had projected a negative flow of only $2.70 billion. The Google parent company maintained its full-year capital expenditure guidance between $195 billion and $205 billion. In contrast, Microsoft reported positive free cash flow of $18.63 billion. This figure represents a 27% decrease from the previous year but remained above zero. Microsoft's capital expenditures and finance leases totaled $45.2 billion. This amount was up 30% from a year earlier but came in below the analyst estimate of $50.67 billion.

Revenue performance also differed between the two firms. Alphabet's search advertising revenue grew 12% to reach $63.35 billion in the September quarter. This figure missed analyst expectations. Philipp Schindler, the company's chief business officer, attributed the shortfall partly to lower monetization within the company's AI Mode. He stated that Alphabet is now scaling ads within its AI Overviews and AI Mode products, including in international markets. The search business faces competition from rival AI chatbots like OpenAI's ChatGPT and Anthropic's Claude. Users may be running more queries outside of Google's platform. Gemini, Alphabet's internal chatbot, has not gained equal traction.

Analysts point to different strategic approaches as the cause for the stock price moves. Ben Barringer, global head of technology research at Quilter Cheviot, described Microsoft's architecture buildout as measured. He noted that this approach contains fewer surprises. Barringer said Alphabet's share price fell after hours due to messy results and a poorly handled earnings call. He argued that Google faces an innovator's dilemma. The company must decide whether to protect its core business or join the disruption. Barringer claimed Google has lost its edge with Gemini and trails peers in agentic AI.

The market is currently scrutinizing how technology companies spend on artificial intelligence. Investors are looking for evidence that these heavy investments will generate returns. The results from these two major players will likely influence sentiment across the sector in the coming days.