Alphabet’s Cloud Doubles, Its Cash Turns Negative, the Stock Sinks

Dear readers,

The question we left open yesterday was whether investors would keep paying for cloud growth when the cash register stays empty. Alphabet got its answer in early US trading on Thursday. Microsoft got a more muted one. Amazon and Intel report this evening, and both face the same test.

Alphabet: The Cloud Doubles, the Cash Drains

Alphabet shares fell roughly 12 to 13 percent in early trading to about $282, even though the cloud business was the bright spot. Google Cloud grew 103 percent in the third quarter to $30.7 billion, and its backlog stands at about $560 billion.

The trouble lies elsewhere. Capital expenditure of $51.4 billion clearly exceeded operating cash flow of $42.3 billion. Free cash flow slid to minus $9.1 billion, after minus $5.9 billion in the second quarter.

Search, meanwhile, is slowing: revenue rose 12 percent to about $63 billion, after growth of 19 and 17 percent in the two prior quarters. Adjusted earnings of $2.67 per share fell short of the consensus. Reported earnings were $2.12 per share, weighed down by a book loss on the SpaceX stake.

The financing is the most uncomfortable part. Long-term debt climbed to $125.1 billion, from $46.5 billion at the end of 2025. Alphabet has placed $28.7 billion in bonds and is also selling shares through an ongoing program.

The finance chief conceded that building up inventory for the company’s own AI chips will weigh on cash flow through 2027. Next year’s capital budget will also rise well above this year’s $195 to $205 billion.

Analysts remain mostly friendly. BofA cut its price target to $380 (Buy), and UBS to $332 (Neutral). Citizens downgraded the stock to “Market Perform.” Shareholders own a winner of the cloud race, but for now one with a weak return on capital and more debt.

Microsoft, Amazon, Intel: Who Delivers Cash, Who Burns It

Microsoft makes the counterargument. Revenue rose 19 percent to $92.3 billion, and Azure grew 48 percent. Free cash flow of $18.6 billion was more than double what analysts expected. Capital expenditure of $45.2 billion came in below plan, and the full-year investment outlook was trimmed to $170 billion, from $175 billion.

Even so, the premarket gain has largely evaporated, and the stock, at $524.50, is barely changed. One reason is that Microsoft plans to place a bond of at least $25 billion. Even the strong have to tap the capital market.

Amazon reports after the US close this evening, around 21:00 in Germany. Analysts expect revenue of about $202 billion, earnings of roughly $1.96 per share and AWS growth of about 37 percent.

The 2026 investment plan is around $220 billion, and free cash flow for the twelve months through June was negative at minus $7.6 billion. The stock, at $246.62, already trades below Wednesday’s close of $254.60. The decisive question is whether AWS grows faster than its costs.

Should investors sell immediately? Or is it worth buying Alphabet?

Intel also reports tonight. The consensus is $16.5 billion in revenue and adjusted earnings of $0.40 per share. The stock, at about $93, is roughly 18 percent below its level 30 days ago but still up about 159 percent since the start of the year. A miss would hit high expectations.

Chips and Neoclouds: The Price of a Spending Pause

If cash burn is punished, the suppliers of that spending come under pressure. Nvidia is slightly lower at $213.62. The Philadelphia Semiconductor Index lost almost 2 percent in early trading. Marvell plunged about 13 percent on news that it is negotiating to buy Lumentum. Morgan Stanley warns of another 10 to 15 percent downside for chip stocks.

The neoclouds, providers specializing in AI computing capacity, were hit as well. Coreweave, Nebius and IREN fell between 5 and 7 percent in premarket trading. IREN trades in Germany at €24.20, close to Monday’s yearly low of €21.

Samsung offered the contrast. Its third-quarter operating profit jumped 783 percent. Because the chip division missed expectations, the stock still fell 4.1 percent in Seoul. The market is no longer looking at record profits but at how long they will last.

Eli Lilly and Others: Where Growth Still Goes Unpunished

Eli Lilly delivers the clearest counter-move. Revenue rose 39 percent to $24.4 billion, a good $2 billion above the consensus. Mounjaro brought in $10.72 billion and Zepbound $5.35 billion. The full-year revenue forecast rises to $91 to $92 billion, from $85 to $87 billion.

The earnings need a closer look. Adjusted earnings came to $7.48 per share and GAAP earnings to $7.22. Both were weighed down by acquisition costs of $4.57 per share, which is why the adjusted earnings forecast edges down to $35 to $36. The new weight-loss pill Foundayo disappointed with $184 million in sales.

Realized prices fell 15 percent worldwide, though volume growth of 53 percent has absorbed that so far. The stock, at $1,382, stands well above Wednesday’s close of $1,288.

Mastercard ($639) also trades above its previous yearly high. Merck is up about 2.5 percent in Germany, near its yearly high. DoorDash wants to buy Instacart for $65 per share, about $17 billion including a 26 percent premium. Capital is flowing to where the numbers are visible.

Rates: Bonds as Competition for the AI Story

The Fed left its policy rate at 3.75 to 4.00 percent on Wednesday. Beth Hammack and Lisa Cook voted for a 0.25 percentage point increase. Fed Chair Kevin Warsh called inflation unacceptably high. Markets price roughly an 80 percent chance of a hike in December. The price data support that view: PCE inflation was 3.6 percent year over year in September, and third-quarter growth came in at 3.4 percent.

The yield on ten-year Treasuries is near 5 percent. That makes credit more expensive and stocks without a cash flow outlook less attractive. Bitcoin is holding near $80,000 but has lost a good 8 percent since the start of the year. Anyone not betting on dividends and free cash flow feels this headwind.

The Takeaway

Tonight will show whether Amazon and Intel follow the Alphabet pattern or the Microsoft pattern. On Tuesday, AMD reports and gives the chip sector its next test. At the center of every report is the same figure: how much cash is left after the investments.

Best regards,
The StocksToday.com Editorial