Azure Grows 48% to $33.17 Billion, Lifting Microsoft as Alphabet Falls
Key Facts
Investors reacted differently to Microsoft and Alphabet’s results on October 28: Microsoft shares rose about 6% in extended trading after Azure revenue grew 48% to $33.17 billion, while Alphabet shares fell more than 10% after it reported earnings per share below analysts’ estimates. Azure revenue exceeded Visible Alpha’s estimate of $32.84 billion, while Alphabet’s quarterly revenue came in slightly below the average analyst forecast. The results highlighted a divergence between cloud computing and advertising performance, as well as increased scrutiny of the cost and returns of AI investment. The companies’ shares closed the regular session at $531.01 for Microsoft and $324.89 for Alphabet Class A, according to EL7 data. In premarket trading on October 29, Microsoft rose 3.5% and Alphabet fell 10.5%, according to Reuters.
Microsoft reported revenue of $92.3 billion in the first quarter of its 2027 fiscal year, which ended September 30, up 19% year over year. GAAP diluted earnings per share were $4.92, up 32% from the same period. The company said Microsoft Cloud revenue reached $63.9 billion, growing 30% year over year, and that it exceeded expectations for revenue, operating income and earnings per share. Azure was the standout in cloud, with revenue of $33.17 billion and year-over-year growth of 48%. The result topped Visible Alpha’s estimate of $32.84 billion, helping explain the immediate welcome the results received in after-hours trading.
By contrast, Alphabet reported third-quarter revenue of $127.58 billion, up 25% from a year earlier, but below the average analyst estimate of $127.97 billion, according to FactSet. Earnings per share were $2.12, compared with an estimate of about $3.01, weighed down by an $8.7 billion loss on equity investments. The AP said the loss reduced earnings per share by 55 cents. Still, consolidated operating income rose 30% and the operating margin was 31.8%, according to the company’s filing with the U.S. Securities and Exchange Commission. Alphabet said revenue had posted double-digit year-over-year growth for the 13th consecutive quarter, reflecting continued business growth despite the disappointment in revenue and earnings per share.
The divergence was also evident within Alphabet’s own businesses: Google Cloud revenue jumped 103% to $30.7 billion, and CEO Sundar Pichai said infrastructure and AI solutions were behind the cloud growth. In advertising, Google Search and other advertising revenue rose 12% to $63.3 billion, while YouTube ad revenue increased 9% to $11.2 billion. The AP reported that Search and YouTube growth fell short of some analyst expectations, despite revenue increases in both businesses. Pichai said year-over-year growth in Search queries reached its highest level in five years and that the Gemini app had reached 1 billion users. These indicators place the cloud boom and rising use of AI products alongside the continued reliance of revenue on Search and advertising.
The divergence in the companies’ results fueled a broader debate over when AI spending will translate into revenue, as companies continue to expand computing infrastructure. Jeremy Saltzberg of Check Capital Management said investors had begun scrutinizing the timing of returns on AI investments relative to capital spending levels. At Alphabet, the CFO said the company expects a significant increase in capital spending in 2027. She added that using computing capacity from third parties could put pressure on cloud margins in the near term. She said further details on spending would be presented during the fourth-quarter earnings call, making that call the next point at which investors will look for clarity on investment plans and their effects on margins.