Alphabet Plunges 8% After Hours Following Earnings Report
Microsoft and Alphabet released earnings the same day showcasing the results of their artificial intelligence investments, but their stock reactions diverged sharply. Shares of Google parent Alphabet fell around 8% in after-hours trading following the close, while Microsoft rose. Whether each company's AI spending had translated into returns was what immediately split investors' verdicts.
Microsoft posted fiscal first-quarter revenue of $92.28 billion and adjusted EPS of $4.89, both surpassing market expectations. Azure revenue, in particular, grew 48% year over year to $33.17 billion. The market's assessment was influenced by the fact that AI-related demand is flowing through to revenue. Microsoft's free cash flow fell 27% due to expanded AI investments. Even so, combined capital expenditures and finance leases totaled $45.2 billion, less than market estimates.
Alphabet recorded Google Cloud revenue of $30.7 billion, showing growth that exceeded expectations. But search revenue, its core cash engine, came in at just $63.35 billion, falling short of the market consensus of $64.96 billion. Massive AI infrastructure investments compounded the problem. With free cash flow shrinking to $9.07 billion, the burden of its spending came into focus. Slowing in its core business and mounting costs weighed more heavily on the market than cloud growth.
In this earnings round, the market's assessment of the two companies hinged on cloud growth momentum, search performance, and whether capital expenditures were kept in check. Investors looked at the size of capex alongside the health of cash-generating businesses such as search and cloud. Microsoft's cloud strength offset its investment costs, while Alphabet's search weakness led the same spending to be seen as a burden.
