Cash is king as investors draw new battle lines in AI spending boom
MSFT•Investors rewarded Microsoft and Oracle for showing how they could fund AI spending, while Alphabet shares fell nearly 11% as cash burn and slower-than-expected Google Search growth raised concerns. Microsoft generated $18.6 billion in free cash flow in its fiscal first quarter; Alphabet spent 121.4% of operating cash flow on capital expenditures, compared with Microsoft’s 68%.
1. Investors focus on cash
Investors drew a sharper distinction between companies generating cash from AI and those struggling to control its costs. Microsoft shares rose more than 2% in premarket trading, while Alphabet fell nearly 11%. Oracle rose nearly 11% in Wednesday’s regular session after saying it planned to cap external financing and expected positive cash flow in the second half of fiscal 2028.
2. Different spending profiles
Alphabet spent 121.4% of operating cash flow on capital expenditures in the September quarter, compared with Microsoft’s 68%, excluding finance leases. Alphabet’s Google Search revenue grew 12%, below expectations for 14.7% growth, while Google Cloud revenue more than doubled to $30.71 billion. Alphabet expects capital expenditure to increase significantly in 2027.
3. Microsoft cash flow
Microsoft generated $18.6 billion in free cash flow in its fiscal first quarter, nearly $10 billion above Wall Street expectations, while spending $45.2 billion to expand computing infrastructure. Azure revenue rose 48%, and Microsoft forecast faster-than-expected cloud growth for the current quarter. CEO Satya Nadella said more businesses were moving beyond AI experimentation and committing to long-term contracts.
