Microsoft shares rise on cash flow as Alphabet drops on search slowdown
Microsoft shares climbed after hours as strong Azure growth and lower-than-expected capital expenditures boosted free cash flow. Alphabet shares fell sharply as slowing search revenue and negative free cash flow outweighed its cloud performance.
Microsoft reported quarterly revenue of $92.3 billion, up 19% year-over-year, with its Azure cloud division growing 48% to $33 billion. This growth exceeded guidance and Wall Street expectations, driven partly by $10 billion in revenue from OpenAI. The company spent $45 billion on capital expenditures, significantly below the $51 billion to $56 billion analysts had projected, resulting in free cash flow of $18.5 billion. Microsoft attributed the lower spend to delayed third-party deliveries rather than a reduction in investment plans. Shares rose 4.8% in after-hours trading to a new all-time high.
Alphabet, by contrast, saw shares fall 10% after hours, erasing approximately $400 billion in market value. While total revenue grew 25% to $127.6 billion and cloud revenue doubled to $30.7 billion, core search revenue growth slowed to 12% from 17% in the previous quarter. Chief Business Officer Philipp Schindler acknowledged that the new AI Mode monetizes worse than classic search results. The company reported a $9.1 billion negative free cash flow, its second consecutive negative quarter, as long-term debt rose from $22 billion to $125 billion over the past year. Bernstein forecasts a $60 billion negative free cash flow for 2027, highlighting investor concerns about cash generation despite top-line growth.