Microsoft vs Alphabet: a clean beat against faster growth and a miss

01Summary

• Microsoft (MSFT): revenue of $92.28B against a $90.62B consensus, and EPS of 4.89 against 4.72, a 3.6% beat. TradeStory Fundamentals counts this as its 14th straight beat.
• Alphabet (GOOGL): revenue of $127.58B against a $127.97B consensus. GAAP diluted EPS was $2.12, and Zacks had the consensus at $2.94.
• Growth points the other way. Alphabet's revenue grew 24.7% year on year and Microsoft's 18.8%. Google Cloud grew 103% and Azure 48%.
• Cash points back to Microsoft. A Motley Fool report put Microsoft's free cash flow at $18.6B for the quarter and said Alphabet burned $9.1B.
• Market reaction: CNBC reported Microsoft up nearly 3% after hours, at record highs. MarketWatch said Alphabet could see its worst drop in years.

02Thesis

Our read is that Microsoft (MSFT) printed the stronger quarter, and that Alphabet (GOOGL) delivered the stronger growth story. The market cared more about the first. Microsoft beat on both lines. Its operating margin rose to 49.8% from 45.1% the quarter before, and MarketWatch's summary of the stock's rise was that it 'showed investors that it's able to grow rapidly while keeping spending in check.'

Alphabet's quarter had a real bright spot: Seeking Alpha reported Cloud revenue up 103% with better margins. Everything around it was soft. Revenue came in slightly below consensus, EPS missed clearly, operating margin slipped to 31.8% from 34.0% the quarter before, and heavy cloud spending drove a cash burn that Investing.com called bigger than expected. MarketWatch said the larger worry is that AI is hurting Alphabet's ability to make money from search queries.

TradeStory Fundamentals' read sums it up: 'The two prints point different ways. Alphabet's business grew faster, but it missed on EPS. Microsoft delivered a clean, steady beat but gave up some gross margin.'

03Overview & stack

Both companies are spending heavily to win AI demand. They differ in where the revenue lands and how much cash is left once the spending is paid for.

Cloud infrastructureAzure and Google Cloud

MSFTGOOGLAzure grew 48% and Google Cloud more than doubled, per The Motley Fool. Alphabet is growing faster at this layer, and that growth is costing it free cash flow.

Capacity partnersNeoclouds

CNBC reported that shares of CoreWeave, Nebius and IREN fell after Microsoft's capex came in below expectations, a sign that partners are taking longer to deliver capacity.

Models and siliconOpenAI, Gemini, TPUs

MSFTGOOGLGeekWire reported that OpenAI brought Microsoft $10B of revenue in the quarter. Alphabet launched Gemini 4 Carbon, and The Motley Fool reports that OpenAI plans to buy Google's TPUs.

Applications and adsSearch, productivity

GOOGLMSFTAt this layer the question for Alphabet is whether AI answers reduce how much money search earns. MarketWatch tied the selloff to that concern.

04Industry & competition

Fox Business's headline for the night was that both prints showed surging AI demand while spending soars. The difference between them is how each one funds that spending. Microsoft grew while keeping spending in check. Alphabet's cloud spending pushed it into negative free cash flow.

The read-across reached beyond these two companies. Neocloud stocks fell on Microsoft's lower capex figure, and Investing.com reported US stock futures down as Alphabet slid. Zacks' view of the wider Q3 season is still positive, with estimates for 2026 Q4 and full-year 2027 continuing to rise.

05Financials

Microsoft, September quarter: revenue of $92.28B, gross profit of $62.56B, operating income of $45.92B and net income of $36.63B. Gross margin was 67.8%, operating margin 49.8% and net margin 39.7%. Revenue was up from $90.01B in the June quarter. Our earnings-surprise table records EPS of 4.89 against 4.72. Earlier beats were 4.74 vs 4.24 in July and 4.27 vs 4.06 in April.

Alphabet, September quarter: revenue of $127.58B, gross profit of $76.16B, operating income of $40.58B and net income of $26.47B. Gross margin was 59.7%, operating margin 31.8% and net margin 20.8%. GAAP diluted EPS was $2.12, against $2.87 a year ago as cited by Zacks. Alphabet's June and March quarters carried very large net income ($112.19B and $62.58B), which makes its recent EPS history noisy. Our surprise table shows the EPS swinging from 9.11 vs a 2.87 estimate in July to 2.67 vs 3.01 now, an 11.3% miss on that basis.

Before the print, TradeStory Fundamentals put trailing free cash flow at about $54.6B for Microsoft and $48.3B for Alphabet. Capex was taking roughly 45% and 40% of operating cash flow respectively. Trailing operating margin was 47.1% for Microsoft and 33.3% for Alphabet.

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Stored values on or before the 2026-10-28 close. Rule of 40 = revenue growth plus FCF margin, as our quant job stores it.

"not stored": there is no stored value for this metric on the facts date.

06Valuation

At the October 28 close, before the prints, Microsoft traded at a trailing PEG of 0.66 against a median analyst target of $625. Alphabet's trailing PEG was 0.84 and its median target was $440. Microsoft's last price was $531.01 and Alphabet's $321.89. Return on invested capital was similar: 20.6% for Microsoft and 21.8% for Alphabet.

The options market was pricing a move of about 4.9% ($26) for Microsoft and 6.2% (about $19.95) for Alphabet into the print. Implied volatility stood at 1.78 times realized volatility for Microsoft and 2.45 times for Alphabet. The bigger move was expected in Alphabet, and post-print reports suggest it came, to the downside.

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Stored values on or before the 2026-10-28 close. Cohort percentile ranks EV/S within the company's own group (lower = cheaper).

"not stored": there is no stored value for this metric on the facts date.

07Risks

Microsoft: slower capex could mean capacity constraints rather than discipline. CNBC tied it to partners taking longer to deliver. Gross margin is also down on the year, and insiders sold about $75.4M over three months with no buys.

Alphabet: the risk is in how the business makes money. Cloud is growing but burning cash, and search monetization is under question. A further miss would make the cash burn harder to defend.

Both: Fox Business described spending as soaring, and the stored theme of a hidden AI debt overhang at Big Tech is attached to both names.

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Short interest at the last settlement on or before 2026-10-28; insider values are Form 4 open-market trades by month (planned 10b5-1 trades excluded).

08TradeStory edge

Going into the print, the crowd was only mildly positive on both names. The TradeStory AI Sentiment Score was 56 for Microsoft and 59 for Alphabet, both close to balanced, so neither result came against a crowded consensus. Short interest was low: 0.88% of float for Microsoft with 3.18 days to cover, and 0.64% for Alphabet with 3.42 days.

Pre-print chart context from TradeStory Technicals, as of the October 28 close: Microsoft was trading above its 50-day average, with MACD momentum rising, RSI between 50 and 70, and a volatility squeeze active. Alphabet showed rising MACD momentum on volume more than 1.5 times its 20-day average, but it was down 2.7% on the week against roughly flat for Microsoft. We do not have an updated chart read since the results.

TradeStory AI Sentiment Score: 50 is balanced, above 50 leans bullish, read on or before the 2026-10-28 close. "not scored" = too little conversation in the window to score.

How we answered, and what we could not