Google search slows, profits under pressure; Microsoft Azure growth clears buy-side threshold

Why was Google search the main weak point?

Google Search and Other revenue was 63.35 billion dollars, up 12% year over year, below market expectations of 64.87 billion dollars and 14.7% growth, and below the buy-side growth threshold of approximately 13%–14%.
Growth slowed by 4.8 percentage points from 16.8% in the second quarter. Even adding the growth rates over the past two years, search growth fell from 28.5% in the second quarter to 26.5%, showing that the slowdown was not solely the result of a higher year-earlier base.
YouTube advertising revenue was 11.21 billion dollars, up 9.2% year over year, below market expectations of 11.45 billion dollars. Growth was also below the second quarter's 12.9%.

Google Cloud revenue was 30.71 billion dollars, up 103% year over year, above market expectations of 29.18 billion dollars but below the buy-side threshold of 31 billion–32.5 billion dollars. The company said TPU system sales contributed significantly to growth.
The cloud operating margin was 36.2%, above market expectations of 33.7%; overall operating profit, however, was only 40.58 billion dollars, below market expectations of 43.4 billion dollars. The shortfall was outside the cloud business.
Group-level costs, mainly shared AI research and development, reached 7.66 billion dollars, above the approximately 5.7 billion dollars implied by market expectations and the second quarter's 5.8 billion dollars. Other businesses lost 2.05 billion dollars, also above market expectations of 1.6 billion dollars.

Azure revenue was 33.2 billion dollars, up 48% at constant currency, above market expectations of 44.9% and the buy-side threshold of approximately 47%. Revenue rose 3.75 billion dollars quarter over quarter, more than the 3.4 billion dollars in the quarter ended June.
M365 commercial cloud grew 18% at constant currency, above company guidance of approximately 17% and market expectations of 16.7%. Adjusted growth was 19%, above adjusted guidance of approximately 18%. This business measure now includes GitHub and Security Copilot.
Microsoft's total revenue was 92.3 billion dollars, above the upper end of company guidance of 90.95 billion dollars. Its operating margin was 49.8%, above market expectations of 48.5%, and operating expenses were also below company guidance.

Google's third-quarter capital expenditure was 51.4 billion dollars, below market expectations of 56.1 billion dollars. Free cash flow was negative 9.1 billion dollars, below market expectations of negative 4.1 billion dollars. During the quarter, the company raised 12.4 billion dollars through continued stock issuance and issued 28.7 billion dollars in senior notes.
If Google's fiscal 2026 capital expenditure range of 195 billion–205 billion dollars remains unchanged, the article's calculations imply fourth-quarter spending of approximately 63 billion–73 billion dollars, versus market expectations of 65.7 billion dollars.
Microsoft's operating cash flow for the quarter was 58 billion dollars. After 39.4 billion dollars in cash spending on fixed assets, free cash flow was approximately 18.6 billion dollars.