Alphabet falls 7% after hours on a profit miss as Google and Microsoft hold off raising capex forecasts

Alphabet’s stock fell 7% in after-hours trading on Wednesday after the company missed profit projections⁵. The company also increased its AI spending past $50 billion in the third quarter⁵. World shares and US futures were mixed after the Google parent’s earnings disappointed^4,10. The revenue miss at Alphabet spooked markets on Thursday⁶.

Microsoft’s results went the other way, in what was called a tale of two hyperscalers². Microsoft’s profits soared days after it announced thousands of layoffs, and this week it said it would offer buyouts to 60,000 workers as it looks to curb costs³. The company reported strong cloud earnings and lower capex, and reported Azure revenue for the first time⁷. It also extended the useful life of its facilities, saying its data centers can last for 25 years⁷.

Why it matters to investors

The past few quarters of hyperscaler earnings have been marked by ever-increasing capital expenditure forecasts as tech giants race to build out AI capacity¹. This time Google and Microsoft put off raising their capex forecasts, a snag for the AI build-out¹.

Analysts at Danske Bank said the AI trade held its gains after the hyperscaler earnings, but that unchanged capex guidance may limit further earnings revision rallies in the broader data centre and semiconductor complex⁸. Huge hyperscaler capex is clearly great for equipment makers such as Samsung, but only as long as the hyperscalers can afford, and fund, that capex, a market commentary said⁹.

That shifts the focus from how much the companies spend to how they pay for it⁹. Microsoft’s longer useful life for its data centres⁷ and its push to curb costs through buyouts³ point to the same pressure on cash.

What to watch

The first marker is capex guidance. Unchanged forecasts from Google and Microsoft¹ could cap the rally in data centre and chip stocks if they persist⁸.

The second is Alphabet’s spending. Its AI outlay passed $50 billion in a single quarter even as profit fell short of projections⁵, and the market reaction spread to global shares and US futures^4,6.

The third is Asia. Tokyo’s Nikkei 225 climbed 1.1% to 64,659.47⁴, and the Bank of Japan is expected to stand pat when it wraps up its policy meeting on Friday¹⁰. Its decision and statement, and a press conference by Governor Ueda, are due on Friday⁶.