Alphabet Fell 12% and Microsoft Held: The Capex Math

Two companies reported on the same evening. Both said cloud demand is the strongest in years. Both spent more than twice last year’s amount on servers and data centers. One lost roughly $500 billion of market value in a day, by Yahoo Finance’s count, and the other barely moved.

This post lines up the two earnings releases number by number and works out the one ratio the market seemed to care about. It makes no forecast about either stock.

Educational content, not investment advice. Company figures are from the October 28, 2026 earnings releases; price moves are from the cited news reports and differ slightly by source and timestamp. Do your own research or consult a licensed adviser before trading.

What We Line Up

• What did Alphabet and Microsoft report on October 28?
• Why did Alphabet fall 12% while Microsoft held?
• How much of operating cash flow did each spend on capex?
• Why did Alphabet’s EPS drop when operating income rose 30%?
• What did the Fed and the Nasdaq do the same week?
• A Reading Checklist for the Next AI Earnings Report

What did Alphabet and Microsoft report on October 28?

Alphabet reported Q3 2026 revenue of $127.6 billion, up 25% year over year, with Google Cloud revenue up 103% to $30.7 billion, according to the company’s earnings release filed with the SEC on October 28, 2026. Microsoft reported revenue of $92.3 billion for the quarter ended September 30, 2026, up 19%, with Microsoft Cloud revenue of $63.9 billion, up 30%, and Azure growth of 48%, according to its investor relations release the same day.

On growth alone, Alphabet had the better quarter. Revenue grew faster. Cloud more than doubled. Operating income rose 30% to $40.6 billion with a 31.8% operating margin. Sundar Pichai said in the release that the company is now on a half-trillion dollar revenue run rate and that TPU system sales were a meaningful contributor.

Read the bottom two rows first. That is where the week’s story lives.

Why did Alphabet fall 12% while Microsoft held?

Alphabet shares fell roughly 12% on Thursday, October 29, 2026 after the company missed earnings and revenue expectations and reported negative free cash flow, while Microsoft gave back its early gains and finished the week down 0.5%, according to CNBC’s weekly wrap published October 31.

Yahoo Finance put Alphabet’s loss at nearly $500 billion of market value, the second-largest one-day loss ever for a US-listed company. CNBC’s Friday live blog quoted Alphabet’s free cash flow at negative $9.07 billion, which matches the $(9,065) million line in the release.

Microsoft’s release has no sentence about capital expenditures at all. When I checked the document, the only capex figure is the cash flow line “Additions to property and equipment,” $39,367 million. CNBC reported that Microsoft did not raise its capital expenditure forecast and that spending came in below expectations. So the market got a bigger bill from Alphabet, with no cash left over, and a smaller-than-feared bill from Microsoft, with cash to spare.

Honestly, that is most of it.

Globalt’s Keith Buchanan, quoted by CNBC on October 30, summed up the mood: last year was hope, this year the question is how it all works in real-world terms. Expectations did the rest. When a stock is priced for a clean beat, a miss on revenue plus a negative cash number is a two-part surprise.

How much of operating cash flow did each spend on capex?

Alphabet spent about 121% of its Q3 2026 operating cash flow on capital expenditures ($51.4 billion of capex against $42.3 billion of operating cash flow), while Microsoft spent about 68% ($39.4 billion against $58.0 billion), based on the two companies’ October 28, 2026 releases.

The growth rates of capex are nearly identical. Alphabet’s quarterly capex rose from $24.0 billion to $51.4 billion, a 114% increase. Microsoft’s rose from $19.4 billion to $39.4 billion, a 103% increase. The difference is the denominator. Microsoft’s operating cash flow grew 29% in the same period. Alphabet’s fell 13%.

Notice the capex-per-revenue row. Microsoft actually spends slightly more per dollar of sales. Measured against revenue, the two look alike. Measured against cash generated, they do not. The market priced the cash version.

One more detail from Alphabet’s own table: trailing-twelve-month free cash flow was $19.7 billion, and the last two quarters were both negative ($(5.9) billion in Q2, $(9.1) billion in Q3). The direction, not only the level, was visible in the release.

Why did Alphabet’s EPS drop when operating income rose 30%?

Alphabet’s diluted EPS fell to $2.12 from $2.87 a year earlier mainly because of an $8.7 billion loss on equity securities, which the company says reduced net income by $6.7 billion and diluted EPS by $0.55 in Q3 2026, according to the earnings release.

This part trips people up. Operating income rose 30%. Net income fell 24%, from $35.0 billion to $26.5 billion. The gap sits in “Other income (expense), net,” which swung from a $12.8 billion gain in Q3 2025 to an $8.2 billion loss in Q3 2026. Last year’s quarter had a $10.7 billion gain on equity securities; this year’s had an $8.7 billion loss. The release itself warns that these swings “could significantly contribute to the volatility” of that line.

When I compared the two income statements line by line, I found that the operating business did exactly what the headline said. The EPS miss came from the investment portfolio, which Alphabet marks to market every quarter. That is worth knowing before you treat the EPS number as a verdict on Search or Cloud.

It also explains why analysts sounded split. Operating results strong, cash and EPS weak, both true at once.

What did the Fed and the Nasdaq do the same week?

The Federal Reserve held the federal funds target range at 3.75% to 4.00% on October 28, 2026, with the interest rate on reserve balances set at 3.90% effective October 29, according to the Fed’s implementation note. CNBC reported that Chair Kevin Warsh took a hawkish tone and that markets expected a hike in December.

That matters for a capex story. CNBC’s weekly wrap tied the sell-off partly to worries that tech companies are borrowing to fund AI buildouts, and higher rates make that borrowing dearer. Alphabet’s own release shows interest expense rising to $967 million in the quarter from $143 million a year earlier.

The index damage was concentrated in tech. The Nasdaq Composite fell 2.86% on Friday, October 30 to 25,437.00, its worst day since June, and finished October down 5.3%, its steepest monthly fall since March 2025, per CNBC. The S&P 500 closed at 7,580.07, down 1.82% on the day. The Dow fell 1.09% to 51,770.31 but still ended October up 1.7%.

You’ll probably notice the pattern: the index with the most AI capex exposure fell the most. Intel, down more than 28% on Friday on weak guidance, and Amazon, which CNBC said kept a $220 billion 2026 capex forecast with trailing free cash flow of negative $42.4 billion, added to the same theme.

For the leveraged-ETF version of a Nasdaq week like this, see what a 3x ETF lost in the Nasdaq’s worst week. For the yield backdrop, the 10-year Treasury vs S&P earnings yield post covers the rate side.

A Reading Checklist for the Next AI Earnings Report

1. Find the cash flow statement, not the press release summary. Capex hides under “purchases of” or “additions to” property and equipment.
2. Divide capex by operating cash flow. Above 100% means the quarter was funded from the balance sheet or borrowing.
3. Check the trend over four quarters. Alphabet’s release prints a quarterly free cash flow table; use it.
4. Separate operating income from net income. Equity-securities gains and losses can move EPS by more than the business did.
5. Read what the company says about next year’s spending. A maintained forecast and a raised one get very different reactions.
6. Note the price timestamp. After-hours, premarket and closing moves differed by several points this week.

Tips

• Use the company’s own “free cash flow” line when it exists; Alphabet reports it, Microsoft does not.
• Compare capex to cash generated, not to revenue, when the question is “can they afford this.”
• Keep the Fed statement next to the earnings release; rate expectations change how borrowing-funded capex is priced.

Warnings

• A negative free cash flow quarter is a fact about one quarter, not a forecast about the company.
• Percentages quoted by news outlets changed during the day; the figures here carry their timestamps.
• This is educational content, not investment advice, and not a recommendation on any stock.

FAQ

Why did Alphabet stock fall on October 29, 2026?

Alphabet shares fell roughly 12% after the company missed earnings and revenue expectations and reported negative free cash flow of $9.1 billion for Q3 2026, with capex of $51.4 billion exceeding operating cash flow of $42.3 billion, per CNBC and the company’s release.

Did Microsoft spend less on AI than Alphabet?

In the quarter ended September 30, 2026, Microsoft added $39.4 billion of property and equipment versus Alphabet’s $51.4 billion, but Microsoft generated $58.0 billion of operating cash flow, so it kept about $18.6 billion after capex while Alphabet was $9.1 billion short.

Why was Alphabet EPS lower if operating income rose 30%?

An $8.7 billion loss on equity securities cut Alphabet’s Q3 2026 net income by $6.7 billion and diluted EPS by $0.55, according to the earnings release, turning a 30% operating income gain into a drop in EPS to $2.12 from $2.87.

Sources

• Alphabet Inc., Q3 2026 earnings release (Exhibit 99.1 to Form 8-K, October 28, 2026)
• Microsoft Investor Relations, FY27 Q1 press release (October 28, 2026)
• CNBC: Stocks started the week with promise but ended in despair (October 31, 2026)
• CNBC: Stock market today live updates (October 30, 2026 close)
• Yahoo Finance: Alphabet stock sinks 12% (October 29, 2026)
• Federal Reserve Board, Implementation Note (October 28, 2026)

Fact-checked based on public sources as of November 1, 2026. Not investment advice.