Microsoft beats expectations as Azure grows 48 percent, while Alphabet shares fall after an earnings miss

Two of the largest companies in the world reported on the same evening, and the market split them in opposite directions within minutes.

Microsoft went first, and the numbers beat the forecasts on nearly every line. Revenue for the quarter ended September 30 reached 92.3 billion dollars, up 19 percent from a year earlier and ahead of the 90.7 billion analysts expected. Operating income was 45.9 billion dollars, up 21 percent. Net income was 36.6 billion dollars, and diluted earnings came to 4.92 dollars a share on a GAAP basis and 4.89 dollars excluding the effect of its OpenAI investment, against an estimate of about 4.73 dollars. Microsoft Cloud brought in 63.9 billion dollars, with growth accelerating to 30 percent. Azure, the cloud computing business at the center of the company AI business, grew 48 percent, ahead of the 44.8 percent estimate. Capital spending came in at 39.4 billion dollars, below the 45.9 billion consensus figure, which read to investors as growth bought for less than feared. The company returned 10.2 billion dollars to shareholders in dividends and buybacks. The stock rose about 4 percent after the close.

Alphabet went the other way. Revenue of 127.6 billion dollars grew about 25 percent but landed just under the 128.2 billion estimate. Earnings fell to 2.12 dollars a share from 2.87 dollars a year earlier, far short of expectations above 3 dollars, because an 8.7 billion dollar loss on equity securities swung other income to a loss of 8.2 billion dollars from a gain of 12.8 billion a year before. Google Search revenue of 63.4 billion dollars and YouTube advertising revenue of 11.2 billion dollars both missed estimates. Google Cloud more than doubled its revenue from a year ago on demand for AI infrastructure, and the Gemini app has reached a billion users, but the spending overwhelmed the growth. Capital spending approached 51.4 billion dollars in the quarter and free cash flow was negative 9.1 billion dollars. Alphabet issued 28.7 billion dollars in senior notes, sold 12.4 billion dollars of stock through an at the market program, and suspended share buybacks for the quarter. The stock fell about 7 percent after the close.

The contrast is the story investors have been circling all season. Both companies are spending at a pace no industry has sustained before, on data centers and computing capacity for artificial intelligence. On Wednesday the market rewarded the company whose spending is already showing up as profit and punished the one whose bill arrived first. “We are starting to see marginal returns, though not enough to relieve the pressure on their balance sheets,” said Dan Sheehan, portfolio management director at Telos Wealth Advisors. Amazon reports on Thursday, and its numbers will be read against the standard these two just set. This report describes the results and the market reaction. It is not a recommendation to buy or sell any security.