Full Breakdown
Microsoft and Alphabet Trim AI Capex Forecasts Amid Strong Cloud Growth
By Drooid · · How we work
In this breakdown
01
Background & Context
The past several quarters have seen hyperscalers repeatedly raise capital-expenditure (capex) forecasts to fund artificial-intelligence (AI) infrastructure. By the end of 2026, analysts expected the three largest cloud providers—Microsoft, Alphabet, and Amazon—to collectively spend over $700 billion on AI data-center capacity, chips and networking. Both Microsoft and Alphabet reported earnings on Oct 28 2026, providing the latest guidance on their AI-related spending.
02
Core Financial Highlights
Swipe across the table to see all columns.
| Metric | Microsoft (FY 2026) | Alphabet (FY 2026) |
|---|---|---|
| Capex forecast | $170 billion (down from $175 billion) | $195 billion-$205 billion (unchanged) |
| Q3 2026 capex spend | — | $51.36 billion |
| Free cash flow | Negative $9.07 billion (Alphabet) | |
| Revenue | $92.3 billion, up 19% YoY | $127.6 billion, up 25% YoY |
| Azure revenue | >$33 billion, +48% YoY | — |
| Google Cloud revenue | $30.71 billion, +103% YoY | — |
| Share-price reaction (after-hours) | +3% (Microsoft) | –10% (Alphabet) |
Microsoft’s fiscal first quarter ended Sept. 30; Alphabet’s third quarter also ended Sept. 30. Both firms cited “ramp-up delays” for third-party GPU capacity that will push additional compute availability into the second half of the fiscal year (Microsoft) or the first half of 2027 (Alphabet).
03
Official Statements & Responses
- Amy Hood, Microsoft CFO, said “GPU-as-a-Service contracts” have been delayed, pushing new capacity into the second half of the fiscal year and that capex will accelerate once the capacity arrives.
- Sundar Pichai, Alphabet CEO, described the quarter as “a strong quarter” and highlighted a “half-trillion-dollar revenue run rate” driven by a “deep full-stack approach.”
- Thomas Kurian, head of Google Cloud, noted that sales of Tensor Processing Units (TPUs) have become a “meaningful contributor” to the cloud business.
04
Criticism & Opposition
Independent analyst Luke Lango argued that the market’s reaction to Alphabet’s capex plan reflects “accounting noise” from an $8.7 billion loss on equity investments rather than a fundamental flaw in the AI build-out. He warned that “Alphabet is now funding the AI buildout with shareholders’ money instead of its own cash,” framing the situation as a financing issue.
05
Verbatim Quotes
- “We are pleased with what we see and what we heard, and trust management's approach to their AI spending,” — Chris Ballard, managing director of Check Capital Management
- “Alphabet is now funding the AI buildout with shareholders’ money instead of its own cash,” — Luke Lango, independent tech analyst
06
What’s Next
- Alphabet’s CFO indicated that capex is expected to rise sharply in 2027, with a full-year forecast of $300 billion.
- Microsoft expects the delayed GPU capacity to become available in the second half of its fiscal year, which should lift capex spending and support continued Azure growth.
The juxtaposition of robust cloud revenue growth with sizable capex reductions underscores the delicate balance hyperscalers must strike between fueling AI expansion and managing cash-flow pressures.