Investors Favor Microsoft and Oracle Over Alphabet Amid AI Spending Gap

Investors rewarded Microsoft and Oracle on Wednesday after the companies demonstrated the ability to fund large AI projects without relying heavily on external financing. Microsoft’s shares rose more than 2 percent in pre-market trading, while Oracle closed the day up nearly 11 percent after announcing a plan to cap external funding and a target to generate positive cash flow by the second half of fiscal 2028.

In contrast, Alphabet’s stock fell almost 11 percent as analysts highlighted the company’s cash burn and weaker-than-expected growth in its core search business. The firm spent 121.4 percent of its operating cash flow on capital expenditures in the September quarter, compared with Microsoft’s 68 percent, a ratio that forces the use of reserves or borrowing.

“Alphabet and Microsoft were night and day,” said Melissa Otto, head of research at S&P Global Visible Alpha. “Microsoft’s quarter demonstrated very disciplined growth, whereas Google is burning cash and its core business came in below expectations.”

Google’s search revenue grew 12 percent, missing a consensus forecast of 14.7 percent, even as CEO Sundar Pichai noted that query volume was at its fastest pace in five years. The slowdown raised concerns that AI-driven chatbots could erode the profitability of the search segment that funds Alphabet’s broader AI investments.

Despite a more than doubling of Google Cloud revenue to $30.71 billion, the overall cash outlay—estimated at up to $205 billion for the year—led to a $9.07 billion cash burn and the company’s first quarterly negative cash flow since June.

“This is definitely a different business, Google. It’s a different business today than it was three, five, ten years ago,” said Jeremy Saltzberg, vice president and senior investment officer at Check Capital, which holds Alphabet shares. He argued that large capital commitments are necessary to stay competitive as rivals such as OpenAI and Anthropic accelerate their AI development.

Microsoft reported $18.6 billion in free cash flow for its fiscal first quarter, nearly $10 billion above Wall Street expectations, while investing $45.2 billion in computing infrastructure. Azure revenue surged 48 percent, and the company forecast faster-than-expected cloud growth for the current quarter.

“The shiny-object stuff is waning,” Microsoft CEO Satya Nadella said on a conference call. “I want the breadth. We have large customers who want to buy from us … As long as the pricing is right, we may sell them some. If not, we will be patient about building the breadth business.”