October 29 (Reuters) — Cash flow is king once again.
Wall Street has applauded Microsoft and Oracle for demonstrating that they can fund their massive artificial intelligence initiatives without having to constantly seek capital from investors.
In contrast, Alphabet was penalized for its rapid cash burn, while a slowdown in Google Search growth fueled concerns that competition is undermining the very business that funds the company’s AI expansion. Amazon’s shares also faced a sell-off following the disclosure of significant third-quarter cash burn and a weak fourth-quarter outlook—even as the company’s cloud revenue saw its fastest growth in nearly five years.
Alphabet (GOOGL.O) shares fell more than 12% on Thursday—marking their worst single-day performance ever—and wiped out approximately $500 billion in market capitalization.
Amazon (AMZN.O) shares dropped over 6% in after-hours trading following the release of its earnings report.
Microsoft (MSFT.O) shares finished nearly flat on Thursday, surrendering earlier gains, following reports that the company is seeking to raise $25 billion through its first U.S. investment-grade bond offering in more than nine years.
Investors have reacted quite differently to these results, suggesting that after previously rewarding companies for aggressively investing—often by taking on debt—to secure computing power, they are now demanding more evidence that the resulting growth can fund the next round of spending.
Last week, Meta (META.O) issued a warning: despite revenue growth that beat expectations and an optimistic outlook, the company’s cash burn overshadowed these positive developments.
Meanwhile, shares of Oracle (ORCL.N) closed nearly 11% higher on Wednesday after the company—led by Larry Ellison—announced plans to limit external financing and projected that it would achieve positive cash flow by the second half of fiscal year 2028.
“We are seeing growing demand for cloud computing services and AI tools across the four major hyperscale cloud providers,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “However, in terms of operational execution, Microsoft appears to be the only one capable of delivering on all these fronts while simultaneously generating cash flow.”
Although Microsoft has also begun utilizing debt financing, the scale remains significantly smaller than that of its peers year-to-date. Google has raised over $140 billion through debt and equity offerings, Meta has raised $62.5 billion, and Amazon has secured $98 billion through bond transactions.
In the 12 months ending September 30, Amazon incurred a loss of $42.4 billion, with third-quarter capital expenditures reaching a staggering $77.26 billion—far exceeding expectations. CEO Andy Jassy stated that, building upon this year’s massive $220 billion in spending, Amazon plans to “significantly increase” its capital expenditures by 2027.
“The headline numbers matter less than the underlying cash flow situation… Amazon’s results were disappointing, and its guidance failed to reassure investors—who were already on edge following the sharp drop in Alphabet’s share price,” said Jesse Cohen, a senior analyst at Investing.com.
Nevertheless, in an effort to allay concerns, Amazon highlighted triple-digit growth in its artificial intelligence business. Jassy expressed even greater confidence than before that the company’s investments would ultimately generate a business with stronger free cash flow.
Meanwhile, for the quarter ending in September, Alphabet’s capital expenditures amounted to 121.4% of its operating cash flow, while the corresponding figure for Microsoft was 68% (excluding finance leases).
A lower ratio means a company has more cash available for stock buybacks, dividends, or debt repayment. A ratio above 100% indicates that a company’s spending exceeds its operating income, requiring it to cover the shortfall through reserves or borrowing.
“Alphabet and Microsoft are worlds apart,” says Melissa Otto, head of research at S&P Global Visible Alpha.
“Microsoft’s quarterly results show very robust growth, whereas Google is burning through cash, and its core business has underperformed expectations,” she notes, adding that this might lead investors to question “whether artificial intelligence is siphoning off some market share from Google Search.”
Google’s search revenue growth for the quarter ending in September slowed to 12%—falling short of the 14.7% growth previously anticipated—even though CEO Sundar Pichai stated that the growth rate of search queries has reached its fastest pace in five years.
This long-lucrative business is now being challenged by AI-powered chatbots and agents that are transforming how people search for information—all while the company ramps up its technology investments. CFO Anat Ashkenazi told analysts that capital expenditures are set to increase significantly by 2027.
Surging Cloud Growth, Tightening Cash Flow
However, Alphabet’s staggering capital expenditures—projected to reach as much as $205 billion this year—are fueling growth in another key area: Google’s AI-driven business.
Google Cloud revenue more than doubled to $30.71 billion, though this growth has been offset by Alphabet’s heavy spending. Following a quarter of negative cash flow reported in June, the company saw a cash burn of $9.07 billion.
“Google’s business has fundamentally changed. It is a completely different company than it was three, five, or ten years ago,” says Jeremy Saltzberg, vice president and senior investment officer at Check Capital, which holds shares in Alphabet.
Addressing concerns over spending, Saltzberg argues that such high levels of investment are necessary for Alphabet to remain competitive, especially as OpenAI and Anthropic appear to be leading the race to develop AI models in Silicon Valley. “We view this as a sport for kings—meaning, if you don’t have $150 billion to spend on capital expenditures next year, don’t even bother entering the game,” said Saltzberg.
Microsoft’s Cash Flow Advantage
The situation at Microsoft is starkly different. In its first fiscal quarter, the company generated $18.6 billion in free cash flow—nearly $10 billion more than Wall Street had anticipated—even as it spent $45.2 billion to expand its computing infrastructure.
Revenue from its Azure cloud business grew by 48%, exceeding expectations, and the company forecasts that its cloud business will grow faster than previously anticipated in the current quarter.
The results also indicate that Microsoft is seeking a broader market for artificial intelligence, moving beyond a small number of deep-pocketed clients—such as OpenAI, whose massive computing demands have fueled the industry’s expansion.
During a call with analysts, Microsoft CEO Satya Nadella noted that as more enterprises shift away from merely experimenting with the latest or most powerful AI models and toward committing to long-term contracts, “the hype is fading away.”
“I want to broaden the scope of the business,” he said. “We have some large customers who want to source from us… if the price is right, we might sell to them. If not, we will be patient in broadening our reach.”