Alphabet Shares Tumble 10% Before the Open as Cash Flow Turns Negative, While Microsoft Climbs

Alphabet shares fell about 10% in premarket trading on Thursday, while Microsoft gained nearly 4%, as investors weighed the two companies' third-quarter spending and free cash flow results.

If Alphabet closes more than 9.77% lower on Thursday, it would mark the company's worst reaction to an earnings report since it went public in 2004. Nasdaq-100 futures were also down more than 1% early in the session.

Alphabet reported negative free cash flow of $9.07 billion for the quarter, a much steeper shortfall than the $2.70 billion analysts had expected. The Google parent kept its full-year capital expenditure guidance unchanged, at between $195 billion and $205 billion.

Microsoft's picture looked steadier. The company reported $45.2 billion in capital expenditures and finance leases for the quarter, up 30% from a year earlier but below analyst projections of $50.67 billion. Its free cash flow dropped 27% to $18.63 billion, though it stayed positive.

The results arrive as investors take a closer look at technology companies' AI spending plans and the returns those investments are generating.

"Microsoft is building out its architecture in a measured way and as such contains fewer surprises," said Ben Barringer, global head of technology research at Quilter Cheviot. "Alphabet, by contrast, saw its share price hit after hours as a result of a fairly messy set of results and a poorly handled earnings call," he added.

Search advertising, Alphabet's largest source of revenue, grew 12% in the September quarter to $63.35 billion but fell short of analyst expectations, adding to the pressure on the stock. Philipp Schindler, Alphabet's chief business officer, said the result partly reflected lower monetization within the company's AI Mode. He said Alphabet is now "scaling" ads within its AI Overviews and AI Mode products, including in international markets.

Google's search business has faced headwinds from the rise of rival AI chatbots such as OpenAI's ChatGPT and Anthropic's Claude, with people possibly running more queries outside Google. Gemini, the company's own chatbot, has not kept pace.

Barringer said Google faces an innovator's dilemma. "The problem for Google is it faces an innovator's dilemma and doesn't know whether to protect its core business or look to join the disruption. As such, Google has lost its edge with Gemini and is behind peers on agentic AI," he said.