Alphabet's third-quarter revenue grew 25% year-over-year to $127.6 billion, slightly below market expectations. Google Cloud revenue grew 103% year-over-year to $30.7 billion, with operating profit rising to $11.1 billion, but search and other advertising revenue of $63.35 billion and total advertising revenue of $82.01 billion both missed expectations. Earnings per share for the quarter were $2.12, below the market expectation of $3.02, partly dragged down by an $8.66 billion loss on equity investments. Meanwhile, capital expenditures reached $51.4 billion, free cash flow turned negative $9.1 billion, and management expects significant increases in capital expenditures in 2027. Alphabet's stock fell more than 10% in after-hours trading. In contrast, Microsoft Azure revenue grew 48%, with free cash flow reaching $18.6 billion in the quarter, and its stock rose more than 3% in after-hours trading. The divergent performance of the two companies highlights that market focus is shifting from AI business growth to whether massive investments can continue to translate into profits and cash flow. Note: Alphabet's free cash flow was also affected by increased TPU inventory and the payment of a $5.2 billion EU fine; Microsoft's capital expenditures were $45.2 billion, lower than the previous expectation of over $50 billion, mainly due to delays in the delivery of some third-party computing power.
