EquitiesMarket noteWednesday 28 October 2026, 22:55
Google earnings: Alphabet fell 10% after hours as profit missed on a SpaceX markdown and cash flow turned negative. Microsoft rose. We think it is too big.
Google earnings sent Alphabet’s shares down about 10% after the bell on Wednesday, while Microsoft’s rose. Alphabet’s class A shares were at $291.97 at 6:36pm New York time, 10.1% below the $324.89 close, Yahoo Finance prices show. Earnings per share of $2.12 fell well short of the $3.02 analysts expected, Investing.com reports, and the company spent more on data centres than its business brought in.
Microsoft told a simpler story. Its cloud grew 48%, and it paid for its building from its own cash. Its shares were up 2.3% after hours, at $543.07, Yahoo Finance shows.
Our view: the fall in Alphabet goes too far. Most of the profit miss is a paper loss on its stake in SpaceX, and the business underneath grew faster than a year ago. The cash question is real, but it was known before tonight.
Revenue rose 25% to $127.6bn and operating income rose 30% to $40.6bn in the three months to September, Alphabet’s results show. Google Cloud more than doubled its revenue, up 103% to $30.7bn, and its operating profit tripled, to $11.1bn from $3.6bn. Cloud now keeps about 36 cents of operating profit from each dollar of sales. On the call, the company put its cloud backlog at $561bn, with about 55% due to turn into revenue within two years.
The weak spots were in advertising. Search revenue grew 12% to $63.35bn, down from 17% growth in the second quarter, the June 10-Q shows, and it was almost flat on the quarter before. YouTube advertising grew 9%. Philipp Schindler, the chief business officer, put most of the slowdown in search down to currency moves.
The miss sits below operating profit. Alphabet booked an $8.7bn loss on equity securities, which cut earnings by 55 cents a share, the release says. Anat Ashkenazi, the finance chief, said it came “primarily” from an “unrealized loss from our investment in SpaceX”: a fall in the value of a stake it has not sold. As we reported last week, SpaceX’s own results showed it spending $19.6bn in a quarter.
Without that loss, earnings per share would have been $2.67. The same stakes have swung the other way before: in the first nine months of 2026, Alphabet recorded $126.8bn of net gains on debt and equity securities, the cash flow statement shows. These marks come and go with the price of shares Alphabet has not sold.
Here the bears have a case. Alphabet spent $51.4bn on property and equipment in the quarter, 121% of the $42.3bn of cash its operations produced, so free cash flow was −$9.1bn, after −$5.9bn in the second quarter. It bought back no shares, against $11.5bn a year earlier. Instead it sold $12.4bn of new shares through an at-the-market programme and raised $28.7bn in bonds. Long-term debt is $125.1bn, up from $46.5bn in December, and the share count has risen 1.7%.
Ashkenazi kept the 2026 spending guide at $195bn to $205bn and said spending will “increase significantly in 2027”. We showed on Sunday that AI spending already used 98% of Big Tech’s operating cash. Alphabet is now past 100%.
| Alphabet | −9.1bn |
|---|---|
| Microsoft | +18.6bn |
Source: Alphabet and Microsoft quarterly results (Form 8-K), 28 October 2026. Operating cash flow less purchases of property and equipment.The Macro Notebook
Microsoft’s revenue rose 19% to $92.3bn, and Azure, its cloud platform, grew 48% to $33.2bn, its results show. Contracted revenue not yet booked rose 73% to $677bn. It doubled capital spending to $39.4bn from $19.4bn, but its operations brought in $58.0bn, which left $18.6bn of free cash flow. It still bought back $4.4bn of shares and paid $6.8bn in dividends.
At the after-hours price, Alphabet has lost about $405bn of market value, by our rough calculation from its 12.29bn shares. That is a large sum for a quarter in which operating profit rose 30% and cloud profit tripled. A paper loss on SpaceX explains most of the miss in earnings per share, and the cash gap was already in the guidance.
The risk to our view is 2027. If spending rises “significantly” again and cash flow stays negative, Alphabet will sell more shares or borrow more, and each shareholder will own a smaller part of the company.
This is analysis and opinion, not investment advice.
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