Alphabet vs Microsoft: AI CapEx Impact on Financials
Both Alphabet (GOOGL) and Microsoft (MSFT) reported strong earnings in Q2 FY2026, but their stock performances diverged significantly. Alphabet posted $119.796 billion in revenue with Google Cloud growing at an impressive rate of 82%, though it recorded its first-ever negative free cash flow (-$5.9B). The company raised full-year capex guidance to between $195 and $205 billion, suspending buybacks due to increased infrastructure spending. In contrast, Microsoft reported Q4 FY2026 revenue of $90.01 billion with Azure growth at 43%, Copilot reaching 30 million paid seats, and a contracted backlog of $678B in RPO. Alphabet's full-stack AI strategy using TPUs and Gemini models reduced reliance on Nvidia (NVDA), while Microsoft’s partnership with OpenAI led to a GAAP revenue drag of $4.9 billion due to partner losses. Despite Alphabet trading at a lower P/E ratio, its negative free cash flow raised concerns about margin pressure from high capex spending. Meanwhile, Microsoft's higher multiple is justified by the visibility and certainty provided by its large backlog. Post-earnings, MSFT surged 15% while GOOGL slipped slightly, reflecting market sentiment on future returns versus current financial strain.
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Topics: AI capex cloud growth free cash flow market reaction