Key takeawayAs both companies maintain substantial investments, Alphabet faces pressure on cash flow and search monetization, while Microsoft faces changes in the timing of spending. Nomura believes financial capacity and AI monetization will be the focus of the next stage.
How have the two companies’ investment plans changed?
- Alphabet’s third-quarter capital expenditure rose to 51.355 billion dollars from 44.924 billion dollars in the second quarter. It maintained its 2026 guidance of 195 billion to 205 billion dollars and expects another substantial increase in 2027.
- Microsoft’s capital expenditure in the first quarter of fiscal 2027, ending in September 2026, was 39.367 billion dollars, above the previous fiscal quarter’s 35.802 billion dollars but below the market consensus of 45.934 billion dollars. Nomura believes some computing resources from third parties appear to have been delayed.
- Microsoft lowered its 2026 capital expenditure guidance from 175 billion dollars to about 170 billion dollars, while expecting spending to exceed 50 billion dollars in the next fiscal quarter. Nomura believes there have been no major changes to either company’s capital expenditure plans, which are broadly in line with previous general expectations.
What contrast is evident in Alphabet’s growth and cash flow?
- Third-quarter Google Cloud revenue was 6% above the Bloomberg market consensus as of 29 October, but Google Search and other revenue was 2% below consensus.
- Nomura believes that, in addition to currency effects, an increase in queries in AI mode, which has lower monetization, may also have weighed on search performance: there is a gap in monetization efficiency between query growth and revenue performance.
- Alphabet’s third-quarter free cash flow was negative 9.065 billion dollars, its second consecutive negative quarter. With the company expecting capital expenditure to keep rising, financial capacity has become a key focus for Nomura.
What progress has Microsoft made in AI revenue?
- Microsoft Foundry sales to enterprise customers tripled year on year, while sales of open-weight models increased tenfold year on year, showing sales growth for related enterprise products.
- Microsoft expects to maintain positive free cash flow through the fiscal year ending in June 2028. Nomura expects attention to shift from capital expenditure plans themselves to financial capacity and progress in AI monetization, including monetization of open-weight models.
