Wall Street bought Microsoft and sold Alphabet after quarterly results were released Wednesday evening. Both lease computing power to and have stakes in AI labs, but this quarter Microsoft cashed in as Alphabet’s bets cost it dearly.
Microsoft (MSFT) stock rose about 2% after the session, while Alphabet (GOOGL, GOOG) stock fell more than 9%, on track for its worst day since October 2023, after its sales fell short.
For Microsoft, labs appear as sales. OpenAI paid it $10 billion in the quarter ended in September, according to Microsoft’s quarterly filing. That’s about 11% of Microsoft’s $92 billion in revenue, and more than its Xbox and Windows businesses brought in combined.
Some of this money is still owed. OpenAI’s unpaid invoices to Microsoft totaled about $7 billion, up from $6 billion three months earlier. Microsoft also owns about 24% of maker ChatGPT, but this time the stake has done little to boost its profits.
The order book has also cooled. Microsoft’s backlog — which customers have signed up for, but Microsoft hasn’t yet booked — fell to about $677 billion, and new bookings fell 12% from a year earlier. CFO Amy Hood blamed the difficult comparison on Azure’s “significant commitments over the past year.”
Alphabet’s bets on labs worked the other way. Its holdings in other companies, including about 14% in Anthropic and part of SpaceX (SPCX), provided about $6 of its second-quarter earnings of $9.11 per share.
This time they cost it. A loss of nearly $9 billion on those holdings reduced earnings by $0.55 per share, to $2.12. Chief Financial Officer Anat Ashkenazi said on the call that the loss came “primarily” from SpaceX, whose shares fell about 12% during the quarter.
Alphabet is also footing the construction bill. The company spent $51 billion on data centers and equipment during the quarter, more than double a year earlier, and burned through about $9 billion in free cash flow — the cash remaining after those investments — for a second straight quarter. Microsoft generated about $19 billion and said it expects to remain positive this fiscal year.
To make up the deficit, Alphabet repurchased no shares, sold about $29 billion in bonds and $12 billion in new stock, and nearly tripled its long-term debt this year to about $125 billion. Meta (META) took a similar path with its nearly $100 billion stock sale.
The benefits are showing up in Google Cloud, where revenue doubled to about $31 billion and the backlog of signed contracts grew to $561 billion from $514 billion three months earlier. Anthropic has committed at least $115 billion to Google for computing power, according to its IPO filing, or about a fifth of that backlog according to Yahoo Finance calculations.
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