Microsoft delivered a fiscal first-quarter beat on October 28, powered by 48 percent growth in its Azure cloud business. Alphabet reported the same evening and missed Wall Street expectations on both revenue and profit for the first time in nearly four years.
What happened in the cloud giants’ quarter
Microsoft closed its fiscal 2027 first quarter with revenue of $92.28 billion, up 19 percent from a year earlier and ahead of the $90.69 billion consensus. Adjusted earnings came in at $4.89 per share against the $4.73 analysts expected, and GAAP earnings rose 32 percent to $4.92 per share.
Alphabet grew revenue 25 percent to $127.58 billion, short of the $128.22 billion analysts anticipated. Adjusted earnings of $2.67 per share fell well below the $3.02 forecast, and GAAP earnings slipped from $2.87 to $2.12 per share, dragged down by an $8.66 billion loss on equity investments.
Both reports landed hours after the Federal Reserve held its benchmark rate at 3.75 to 4 percent. The central bank had raised rates by a quarter point in September, its first increase in three years, and voted 10-2 to stand pat this time.
Key numbers from both reports
| Metric | Microsoft | Alphabet |
| Revenue | $92.28 billion, up 19% | $127.58 billion, up 25% |
| Revenue expected | $90.69 billion | $128.22 billion |
| Adjusted EPS | $4.89 | $2.67 |
| Adjusted EPS expected | $4.73 | $3.02 |
| Cloud revenue | Azure $33.17 billion, up 48% | Google Cloud $30.7 billion, up 103% |
| Free cash flow | $18.63 billion, down 27% | Negative $9.07 billion |
| After-hours reaction | Shares up about 2% | Shares down about 8% |
Why the results diverged
Microsoft disclosed Azure revenue in dollar terms for the first time, and the $33.17 billion figure topped the $32.32 billion analysts modeled. Total Microsoft Cloud revenue rose 30 percent to $63.9 billion, and commercial remaining performance obligation climbed 73 percent to $677 billion.
Alphabet’s cloud business was its bright spot, producing $11.1 billion of operating income on 103 percent growth. The rest of the report buckled under spending. Capital outlays jumped, free cash flow swung negative, and search and YouTube advertising underperformed.
Jesse Cohen, senior analyst at Investing.com, called the Microsoft report about as clean as it gets for a company this size. He noted that demand still exceeds supply, the commercial backlog is enormous, and returns are showing up in earnings and revenue.
What the divide means for investors
The two reports sharpened a question hanging over the market: when does artificial intelligence spending start producing dependable cash flow? Microsoft generated $18.63 billion of free cash flow even after its buildout. Alphabet spent its way to a negative figure for the quarter.
For dividend-focused investors, that cash flow gap matters more than headline growth. Dividends and buybacks are paid from cash, not from revenue growth, and both companies now carry multibillion-dollar capital budgets.
What to watch next
Futures markets price roughly 85 percent odds of a quarter-point rate increase at the Fed’s December meeting, according to CME FedWatch. Higher rates raise the cost of the debt funding AI infrastructure, a pressure point investors flagged in both reports.
Apple reports on November 2. Microsoft’s commercial backlog and Alphabet’s capital spending trajectory will anchor the next round of cloud questions for income and growth investors alike.
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