The three largest cloud providers delivered their strongest AI-driven cloud growth yet in the September quarter, and also the clearest evidence of what that growth costs. Alphabet and Microsoft reported on October 28 and Amazon on October 29. Cloud revenue accelerated at all three, but record capital expenditures on chips and data centres squeezed free cash flow, and investors rewarded or punished each company depending on how that trade-off looked.
Alphabet: Cloud Doubles, Shares Slide
Alphabet's revenue rose 25% to $127.6 billion, and Google Cloud revenue more than doubled to $30.7 billion, beating the roughly $28.7 billion analysts expected, according to CNBC. The Gemini app has now reached one billion users.
The rest of the report was weaker. Net income fell to $26.2 billion from $35.0 billion a year earlier, as an $8.66 billion loss on equity holdings followed a $99 billion gain in the second quarter. Search revenue grew 12% to $63.35 billion, short of the $64.96 billion consensus. Capex was $51.4 billion, below the roughly $55.1 billion expected, and quarterly free cash flow was negative $9.1 billion, against expectations of a positive figure.
CNBC reported that Alphabet missed analyst estimates on both revenue and earnings for the first time in nearly four years, and that shares fell more than 10% after the report. Alphabet held its 2026 capex outlook at $195 billion to $205 billion, and CFO Anat Ashkenazi told analysts the company expects capex "to increase significantly in 2027."
Microsoft: Azure Accelerates, Capacity Lags
Microsoft's fiscal first quarter of 2027 produced revenue of $92.3 billion, up 19% and ahead of the $90.7 billion consensus. Azure revenue grew 48% to about $33.2 billion, accelerating from 42% in the June quarter. GAAP net income rose to $36.6 billion from $27.75 billion a year earlier.
Microsoft's spending came in below expectations, but not by choice. Capex including finance leases was $45.2 billion, against a StreetAccount estimate of $50.67 billion, because, as CFO Amy Hood put it, some third-party capacity deliveries "we expected in Q1 were delayed." She added that demand still exceeds supply. Free cash flow fell 27% to $18.6 billion but stayed positive, and Hood said Microsoft will keep generating free cash flow through fiscal 2027 while tapping other funding sources, including debt, when attractive.
Guidance impressed investors: Microsoft forecast fiscal second-quarter Azure growth of 49% to 50% in constant currency, and CNBC reported that shares rose about 4% in extended trading. CNBC also cited guidance of about $170 billion of spending for calendar 2027; some other outlets described that figure as fiscal-year guidance.
Amazon: AWS Accelerates as Cash Flow Turns Negative
Amazon's net sales rose 12% to $201.9 billion, and operating income climbed to $28.1 billion from $17.4 billion. AWS revenue grew 39% to $46.0 billion, with operating income of $17.8 billion. CEO Andy Jassy said AWS's investment in infrastructure "is working," and the company projected AWS growth above 40% in both 2027 and 2028.
The bill is steep. Purchases of property and equipment reached $77.3 billion in the quarter, more than double the $35.1 billion a year earlier, and trailing 12-month free cash flow swung to an outflow of $42.4 billion from an inflow of $14.8 billion. Amazon expects cash capex of about $220 billion for 2026 and guided fourth-quarter sales to $240 billion to $247 billion.
Amazon's earnings also carried an accounting echo of the AI boom: net income dipped to $20.7 billion from $21.2 billion because the year-earlier quarter included $9.5 billion of pre-tax gains on its Anthropic investment. Diluted earnings per share were $1.89, against $1.95 a year earlier.
The Scorecard
- Fastest cloud growth: Google Cloud at 103%, ahead of Azure at 48% and AWS at 39%
- Largest quarterly capex: Amazon at $77.3 billion, then Alphabet at $51.4 billion and Microsoft at $45.2 billion including leases
- Free cash flow: Microsoft positive; Alphabet negative for the quarter; Amazon negative on a trailing basis
Why It Matters
The September quarter confirmed that demand for AI infrastructure is real and accelerating: all three hyperscalers grew cloud revenue faster, and both Microsoft and Alphabet said supply, not demand, is the constraint. But it also showed that the AI build-out has started to consume the cash that once funded buybacks and dividends. Last week this publication flagged Meta's capex surge as a test for the sector; this week's results show the same pressure spreading across Big Tech.
Investors are now discriminating sharply. Microsoft was rewarded for strong guidance and positive cash flow, while Alphabet was punished despite doubling cloud revenue, because earnings missed and cash flow turned negative. With every company signalling higher spending in 2027, free cash flow and financing choices are likely to dominate the next round of earnings calls.
