Why big tech stocks split after earnings — Alphabet fell 13%, Microsoft held, and the difference was who pays for AI with cash

All three report cards were strong. What split the stocks was where the money for that growth came from. Microsoft and Alphabet reported July–September results after the US close on October 28, and Amazon after the close on October 29. All three posted faster cloud growth. Yet on October 29 Alphabet fell about 13%, its biggest one-day drop since its 2004 listing, while Microsoft held roughly flat. Amazon slid about 7% in after-hours trading once its results came out.

The dividing line was free cash flow: cash from operations minus capital spending. Of the three, only Microsoft kept it positive.

1. Third-quarter results — cloud accelerated everywhere

On cloud alone, Alphabet had the best quarter: Google Cloud revenue more than doubled and its operating margin rose to 36.2%. AWS growth of 39% was its fastest in nearly five years. Azure beat both company guidance and analyst forecasts. The stocks still went in opposite directions.

2. How much cash the AI build-out is consuming

Together the three spent about $168 billion on capex in a single quarter. Alphabet generated $42.3 billion of operating cash and spent $51.4 billion, covering the gap with $28.7 billion of bonds and $12.4 billion from at-the-market share sales. Amazon's trailing operating cash flow rose 29% to $168.3 billion, but net capex over the same period was $210.7 billion. Free cash flow swung from plus $14.8 billion a year earlier to minus $42.4 billion, which the company attributed to "investments in artificial intelligence."

Microsoft more than doubled its capex from a year earlier and still produced free cash flow about twice the roughly $8.5 billion analysts expected. Part of that reflects third-party data center capacity arriving late, pushing spending into later quarters. Investors nonetheless rewarded a company paying for AI out of what it earns.

Meta fell 7% the previous week for the same reason, after its free cash flow turned negative (「메타 잉여현금흐름 마이너스 21억 달러」). The market is now judging less the size of AI spending and more whether a company can fund it from its own cash.

3. A thinner cushion — slowing search and ads

Investors tolerated heavy AI spending because the core businesses were throwing off cash. For Alphabet, that cushion is search, and its growth has slowed from 19% in the first quarter to 12% in the third. The company said search query growth is at a five-year high, but revenue growth ran into a tough comparison with last year. YouTube ads grew only 9%.

Net income fell 25%, mostly because of an $8.7 billion paper loss on equity investments that cut about 55 cents a share. That loss involves no cash, but combined with negative free cash flow it sharpened the question of funding. One analyst told Fortune it was a problem of how to pay for AI, not one of nobody wanting it.

Amazon faced a similar issue. According to The Elec, advertising revenue grew 12% to $19.6 billion, short of the 18% expected; the company pointed to Prime Day shifting into the second quarter.

4. October 29 share moves

CNBC estimated the Alphabet drop erased about $500 billion of market value. Amazon had already fallen 4.3% in the regular session before its report and slid further after hours. Microsoft guided next-quarter Azure growth to 49–50% and rose 4% after hours, but could not hold the gain in regular trading; it was still the best performer of the three.

5. Where the AI money goes — Korea's two memory makers

For readers outside Korea: SK hynix and Samsung Electronics supply most of the high-bandwidth memory (HBM) that sits inside AI servers, and together account for a large share of the KOSPI index.

Combined, the two earned about ₩190 trillion (roughly $130 billion) of operating profit in the quarter, almost all from chips. SK hynix expects HBM4 to overtake HBM3E as its main product in the fourth quarter. How big-tech spending turns into Korean exports is covered in 「AI 캐펙스란 — 빅테크가 쓴 돈이 한국 수출로 오기까지」.

The structure is plain: as big tech free cash flow turns negative, that cash shows up as profit at equipment and memory suppliers. Plans to spend even more in 2027 are a demand signal for memory makers. But if investors start pressing big tech to slow spending because of cash flow, this supply chain would be the first to feel it — a worry that already weighed on the KOSPI when it fell below 5,500 on October 26 (「코스피 5,500 무너진 이유」).

6. What remains open and unverified

• Share moves: Alphabet's drop is reported at 11–13%, and Microsoft's October 29 move as slightly up or slightly down, likely reflecting different measurement times.
• Microsoft capex plan: Reports differ on whether the 2026 outlook is about $170 billion or $175 billion.
• Amazon details: Quarterly free cash flow of −$33.5 billion, 12% ad growth and the 2027 capex remark were confirmed by one outlet.
• 2027 size: Alphabet's roughly $300 billion is a reported figure; the company has said only "significant increase," with detail due at fourth-quarter results.
• Amazon regular session: How the ~7% after-hours drop settles in the October 30 session is not reflected here.