Microsoft and Alphabet's Earnings Put the Cost of the AI Buildout Under the Microscope

Microsoft and Alphabet's latest earnings are drawing fresh scrutiny to how much cash the AI buildout is actually costing both companies, as capital spending climbs faster than the cash coming in the door.

Alphabet's capital expenditures have climbed from $32.2 billion in 2023 to $91.4 billion in 2025, and the company has guided toward roughly $200 billion in spending for 2026, with some guidance stretching as high as $205 billion. That spending has already tipped the company into negative free cash flow: in its prior quarter, Alphabet's capital expenditure of $44.9 billion outran its operating cash flow of $39.1 billion, pushing free cash flow negative for the first time since the company's 2004 listing. Alphabet is projected to post negative free cash flow through 2026 and 2027.

Microsoft's capital expenditure is expected to reach roughly $51 billion for the quarter, and analysts expect free cash flow to fall to about $7.99 billion, down from $25.7 billion a year earlier, a decline of roughly 69%. Microsoft's own free cash flow is expected to keep shrinking through its current fiscal year, which ends in June, before turning higher again afterward.

Despite the cash flow pressure, the two stocks have moved in opposite directions since their last earnings reports. Microsoft's shares are up 36% since its July 29 report, while Alphabet's stock has fallen about 6.3% since its July 22 report, the same release in which it first disclosed negative free cash flow tied to AI spending.