Can Microsoft and Alphabet Earnings and Growth Outpace AI Spending Fears?

In results after the bell Wednesday, leaders of Microsoft (MSFT) and Google parent Alphabet (GOOGL) will need to justify aggressive artificial intelligence spending and show cloud growth.

Microsoft, whose shares are up nearly 10% year to date through Tuesday's close, has consistently beaten Street estimates over the past two years, though gross margin percentages have been compressing recently. Analysts expect fiscal first-quarter earnings of $4.71 per share, according to Zacks. Investors and traders are likely to focus on how demand for Azure, Microsoft's cloud computing platform, and AI infrastructure investment, are translating into durable returns. The company previously said it expects Azure growth of 44% to 45% in constant currency, so numbers in that range or higher would confirm strength in AI infrastructure and services.

Alphabet, whose stock is up 2.4% year to date through Tuesday's close, is expected to produce earnings of $2.94 per share, according to Zacks. Alphabet investors will be watching its three major growth engines: Search advertising (its traditional bread and butter), YouTube, and Google Cloud. Alphabet investors will be looking for progress in monetizing Gemini, its generative AI platform, and other AI products. It has allocated significant capital to data centers and computing infrastructure needed to support AI development and deployment.

CapEx Lessons from Meta Platforms 

Even if both Microsoft and Alphabet establish some AI progress, consider Meta Platforms (META). The stock slid last week despite reporting results that topped estimates, excluding a $9.89 billion litigation charge. Meta reported that its free AI app Muse passed 10 million users in the U.S. and Canada. It offered guidance calling for strong 2027 revenue growth. But the challenge: leaders raised the bottom of their capital spending by $5 billion, to a range of $135 billion-$145 billion for 2026. Meta also plans an equity offering totaling roughly $95 billion. Nvidia (NVDA) said it would participate in Meta's offering, and tech stocks got a lift Tuesday.

Watching MSFT and GOOGL Cash, CapEx 

The Street is closely watching hyperscalers’ capital expenditures: The consensus among analysts calls for Microsoft fiscal 2027 CapEx of $196.6 billion, which is triple the FY2025 figure, according to S&P Global research online. Expectations for Alphabet CapEx have surged from $91.4 billion in FY2025 to $311.8 billion in FY2027, according to S&P Global.

There could be a cushion for Microsoft and Alphabet: cash. Microsoft had $76.8 billion in cash and short-term investments as of June 30, according to Zacks. Alphabet had about $242.4 billion in cash and short-term investments as of June 30, according to Zacks, but its free cash flow turned negative last quarter, drawing scrutiny of its AI infrastructure spending.

Shares could be pressured depending on how CapEx and cash figures shift this quarter as spending and investment increase. Existing market anxiety about AI, inflation, and interest rates is contributing to a shift from momentum stocks and into perceived value and cash. But tech companies that can generate cash and prove that AI investment is yielding results could avoid some spending scrutiny.

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