Alphabet Falls About 10%, Microsoft Rises: AI Spending Splits Big Tech Earnings, and Xbox Keeps Shrinking

Two of the world's biggest tech companies reported earnings on Wednesday evening, and investors reacted in opposite directions. Alphabet, Google's parent company, grew fast but missed expectations, and its shares dropped about 8% to 10% after hours. Microsoft beat expectations on the strength of its Azure cloud, and its shares rose. The common thread: how much these companies are spending on AI. Here's what happened, plus what Microsoft's numbers say about Xbox.

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Alphabet: strong growth, but a miss

• Revenue: $127.6 billion for the July–September quarter, up 25% from a year ago.
• Google Cloud: $30.7 billion, up 103%. AI demand is pouring into Google's cloud business.
• Earnings: diluted earnings per share were $2.12, down from $2.87 a year ago. CNBC reports adjusted earnings of $2.67 per share against about $3.02 expected. CNBC called it Alphabet's first miss on both revenue and earnings in nearly four years.
• Free cash flow: negative $9.07 billion, far below what analysts expected. The company is spending more on AI data centers than it brings in from operations.
• Spending: Alphabet kept its 2026 capital spending forecast of $195 billion to $205 billion and said it expects a significant increase in 2027.
• Stock: shares fell roughly 8% to 10% in after-hours trading, depending on the source and the time.

Microsoft: Azure carries the quarter

• Revenue: $92.3 billion, up 19%, above the roughly $90.7 billion analysts expected.
• Earnings: $4.92 per share.
• Azure: Microsoft's cloud business grew 48%, above the company's own guidance.
• Spending: capital spending of about $45.2 billion came in slightly below some forecasts, which eased worries about runaway AI costs.
• Stock: shares rose roughly 2.5% to 5% after hours, with most reports around 4%.

The Xbox angle: still shrinking

Inside Microsoft's strong quarter, gaming was a weak spot:

• Xbox hardware revenue fell 14% from a year ago, because fewer consoles were sold.
• Xbox content and services (games, Game Pass and more) fell 2%, or 1% excluding currency changes. Inven Global notes it's the fourth quarter in a row of decline, though the drop was smaller than the previous quarter's.

It fits a tough year for Xbox: a reported $1,800 price projection for the next console, the planned closure of Arkane Lyon, and job cuts earlier in the year.

Why the reactions were so different

Both companies are spending enormous amounts on AI. The difference is what investors saw in return. Microsoft showed fast Azure growth with spending slightly below forecasts. Alphabet showed fast cloud growth too, but with negative free cash flow and a promise to spend even more next year, which revived fears that AI costs are running ahead of profits. US stock futures fell overnight after Alphabet's report, with attention turning to Amazon's results next.

What it means for gamers

All that AI spending is the same reason PC parts are so expensive right now: data centers are buying up memory and chips. If you're wondering why a 32GB RAM kit costs around $450, this is a big part of the answer, and memory makers like SK Hynix are the ones cashing in.

My take

Same AI race, two very different report cards. Microsoft convinced investors its spending is paying off; Alphabet's numbers made them nervous about how big the bill is getting. For Xbox fans, the takeaway is less exciting: even in a great quarter for Microsoft, the gaming side keeps shrinking. Do you think the AI spending will pay off, or is it getting out of hand?