AI investments do not bear fruit everywhere

Microsoft and Alphabet numbers Light and shadow in AI investments As of: October 29, 2026 • 10:28 a.m

The tech giants in Silicon Valley are investing billions in artificial intelligence. But the money invested does not automatically lead to growth. This is shown by the figures from Microsoft and Alphabet.

Billions burned at Google parent Alphabet and cash registers ringing at Microsoft: The business figures of these US technology companies are exemplary of the bright and dark sides of the current AI boom. Both companies are investing billions of dollars in the construction of new data centers for artificial intelligence (AI).

At Alphabet, however, revenue isn't growing fast enough to cover these costs. Microsoft, on the other hand, generated free cash flow of $18.6 billion, twice as high as expected.

The software company's figures are "as flawless as they can be for a company of this size," said analyst Jesse Cohen from the financial portal Investing.com. While the balance sheets of Alphabet and Facebook parent Meta fueled concerns that expanding AI infrastructure could turn out to be a losing proposition, Microsoft provided evidence to the contrary.

Investors reacted accordingly in after-hours trading on Wall Street on Wednesday. Alphabet shares temporarily fell by more than ten percent. As a result, Google's parent company's stock market value shrank by more than $400 billion. Microsoft stocks, on the other hand, rose by 3.5 percent.

Microsoft CFO Amy Hood described the past quarter as a good start to the 2026/2027 financial year. All important key figures exceeded market expectations. Growth in the Azure cloud division accelerated to 48 percent after an increase of 43 percent in the previous quarter.

At $45.2 billion, investments, however, were around five billion dollars behind the company's own plans. However, this is primarily due to delivery delays, explained company spokesman Jonathan Neilson.

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Marcel Tietjen, technology expert at the consulting firm BearingPoint, pointed out another aspect: "Behind Microsoft's quarterly figures there is a shift in the business model that has so far received little attention." Due to the increasing spread of digital assistants that carry out complex tasks independently and the usage-based billing of AI models, license income is becoming less important. "Microsoft's growth in the future will depend less on the number of users than on how much work AI agents take on in companies."

In order to further boost this business, Microsoft boss Satya Nadella has added a number of cheaper AI models to the range. In doing so, he is responding to the growing need to save money among corporate customers whose AI costs are getting out of hand.

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Alphabet's Google Cloud division doubled its sales in the reporting period. The negative free cash flow almost doubled and, at around nine billion dollars, exceeded analyst forecasts by around 250 times. Operationally, the group also slipped into the red and made a loss of $7.66 billion.

Group sales were also disappointing due to weak advertising revenue. A trend reversal is not in sight for the time being. Alphabet CFO Anat Ashkenazi confirmed her forecast of investing up to $205 billion in expanding the AI ​​infrastructure in 2026. In the coming year, however, expenses are likely to increase significantly. At the same time, renting external computing capacity puts pressure on margins.

Investors are watching the rising costs of expanding AI infrastructure with concern. They fear massive depreciation because, according to experts, the systems are unlikely to generate any profits in the foreseeable future. This is reflected, among other things, in the rising premiums for protection against payment defaults by the large technology companies. The prices of so-called credit default swaps (CDS) have recently climbed to record highs.

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Since the beginning of the year, the US companies Amazon, Alphabet, Meta and Oracle alone have issued bonds with a total volume of well over $200 billion. Facebook parent Meta, which has also burned billions in recent months because of AI, also wants to issue new shares with a total volume of almost $100 billion. The company placed a first tranche of $37.5 billion on Tuesday.

Oracle on Wednesday tried to calm investor concerns about funding its AI plans with an optimistic forecast for cash inflows. The SAP rival promised positive free cash flow for the second half of the 2027/2028 financial year due to falling investments. The following year it is expected to exceed $30 billion.

This topic in the program: tagesschau.de | Stock market: DAX outlook, Fed, balance sheets of Microsoft and Alphabet | 10/29/26 | 6:17 a.m