Shares of two major technology companies moved in opposite directions in premarket trading on Thursday following their third-quarter earnings reports: Alphabet, the parent company of Google, fell sharply, while Microsoft’s stock moved higher. CNBC reported that investors scrutinized capital expenditures (capex), free cash flow, and the returns on AI spending.
Market moves in brief
- Alphabet shares fell about 10 percent before the market opened. If the stock closes down more than 9.77 percent for the day, it would mark the company’s worst post-IPO market reaction since it listed in 2004.
- Microsoft shares rose nearly 4 percent in premarket trading.
- The Nasdaq-100 futures, which track a broader technology index, were down more than 1 percent in early trading.
Financial details and implications
The differing investor responses can be traced to the firms’ reported financial metrics.
Microsoft
- Microsoft spent $45.2 billion on capital expenditures and financial leases in the third quarter, 30 percent more than a year earlier but below analysts’ expectations of $50.67 billion.
- Microsoft’s free cash flow fell 27 percent to $18.63 billion, but remained positive.
Alphabet
- Alphabet reported negative free cash flow of $9.07 billion for the quarter.
- The company maintained its full-year capex guidance of $195 billion to $205 billion.
These figures suggest that while Microsoft increased investments, it still generated positive cash flow, whereas Alphabet’s negative free cash flow raises investor concern and helps explain the larger share-price drop.
Advertising revenue and AI effects
Google’s core search advertising business underperformed expectations. Search revenue grew 12 percent to $63.35 billion for the quarter ending in September, but that amount fell short of analyst forecasts. Philipp Schindler, Alphabet’s chief business officer, said the search business’s performance was partly held back by lower monetization from the AI Mode feature; he added that the company has begun expanding ad placements on AI Overviews and AI Mode surfaces, including internationally.
The search unit also faces competitive pressure from external AI chatbots such as OpenAI’s ChatGPT and Anthropic’s Claude. Users are increasingly directing searches outside the Google ecosystem, and Google’s own model, Gemini, has so far not matched competitors in performance, according to the report.
Why this matters
Investors are increasingly focused on whether AI investments will pay off. Free cash flow trends and advertising revenue performance can have an immediate impact on stock prices; Alphabet’s negative cash flow and weaker-than-expected search ad results largely explain the strong downward market reaction. For Microsoft, despite higher capex and a decline in free cash flow, the continued positive cash generation and details in the earnings report appeared less troubling to investors.
Closing note
These developments underscore that the balance between AI spending and cash generation is a key determinant of how technology companies are valued. The market reactions reported by CNBC reflect growing investor sensitivity to the returns on AI expenditures.
This article is not investment advice. An AI assistant contributed to the preparation of this piece; the final content was edited and verified by a journalist.
