The earnings season of the largest technology companies has exposed a key divide: the ability to finance the artificial intelligence boom from their own funds. While Microsoft demonstrates sustained free cash flow, Alphabet records a negative figure for the second consecutive quarter, casting doubt on its investment appeal.
Alphabet retains about $27.6 billion under its current share buyback program, which is capable of supporting the stock price for existing holders. However, Microsoft's free cash flow — the funds remaining after capital expenditures — stayed positive and amounted to $18.6 billion.
Why the market is revaluing Microsoft
Microsoft's free cash flow in the first quarter declined by 27% year-over-year, yet revenue from the Azure cloud segment grew by 48%. Chief Financial Officer Amy Hood confirmed the company's intention to maintain positive free cash flow through the end of fiscal year 2027.
It is precisely this strategy, according to analysts' assessment, that distinguishes Microsoft from competitors: the company is run as a business, not as a laboratory project.
At the same time, with regard to Alphabet, it is reasonable to wait for analysts to revise their ratings downward before increasing positions.
Can Alphabet and Amazon justify their spending
In the third quarter, Alphabet's free cash flow was minus $9.1 billion, whereas in the second quarter the figure was at minus $5.9 billion. The company raised $12.4 billion through share sales and $28.7 billion through bond issuance — concerns about AI investments and debt burden remain relevant.
In addition, Alphabet has committed to paying SpaceX $920 million per month for computing capacity through June 2029. The agreement includes about 110,000 Nvidia graphics processors.
Amazon missed profit forecasts, but its operating margin reached a company record of 13.9%. The AWS cloud division showed growth of 39.3% and reached an annual turnover of $184 billion. Amazon also remains on the list of priority buys, but with a caveat: one should first study the financial statements.
Data from the three reports of the largest IT companies show who is capable of financing AI expenses from their own funds. Among the four leading players, only Microsoft still maintains positive free cash flow. If spending exceeds the plan, the situation will change.
Cryptalist analysis: The divergence in free cash flow between Microsoft and Alphabet reflects a fundamental shift in the valuation of Big Tech — the market increasingly values capital discipline rather than the scale of AI ambitions. Alphabet's negative cash flow amid growing debt financing creates a risk of multiple revaluation, whereas Microsoft's sustained cash generation forms a defensive premium. Investors should monitor capital expenditure dynamics in the next quarter: exceeding planned spending could quickly change the balance of power.