Microsoft, Alphabet, and Amazon Earnings Preview: Three AI Monetization Paths, Who is Closer to Realizing Returns?

Microsoft and Alphabet will release their earnings after the market closes on October 28 (Wednesday) Eastern Time, corresponding to around 4 AM Beijing Time on October 29; Amazon will release its earnings after the market closes on October 29 (Thursday), corresponding to around 4 AM Beijing Time on October 30.

After the earnings reports are released, prices will first react in after-hours trading, with the specific release times subject to each company's announcements.

Key Highlights:

• Microsoft: Can Azure's growth and free cash flow meet expectations simultaneously? The market is concerned not only with cloud business growth but also whether the company can fulfill its promise of turning free cash flow positive after continuously expanding computing power.

• Alphabet: Can the high growth of its cloud business translate into profits? The backlog of $514 billion provides revenue visibility, but the ongoing investment in expanding computing power and depreciation still requires higher operational returns to sustain.

• Amazon: Can AWS's profit improvement keep pace with its expansion speed? While order and revenue growth remain strong, what truly affects medium- to long-term expectations is the relationship between future capital expenditures, AWS profit margins, and cash flow recovery.

• The same round of AI construction, but different financial constraints. Microsoft, Alphabet, and Amazon recently disclosed a combined capital expenditure of approximately $134.9 billion for the reporting period. All three are expanding computing power, but the ways they realize returns on investment differ.

Introduction: Beyond AI demand, the market is starting to question the return formulas of the three companies.

After Meta released its earnings last week, revenue and profit guidance exceeded market expectations, but free cash flow in the third quarter fell to negative $2.12 billion, compared to positive $10.63 billion in the same period last year. The simultaneous occurrence of revenue growth and weakening cash flow has shifted the market's focus on AI investments; while strong demand remains important, the timing of when new investments will yield sufficient returns also affects valuations.

This week, Microsoft, Alphabet, and Amazon will successively announce their earnings. All three are building AI infrastructure but have different monetization paths. Microsoft relies on Azure to sell cloud computing power to enterprise customers. Alphabet operates Google Cloud while also using its infrastructure to transform its search and advertising businesses. Amazon needs to prove that AWS's growth and profit improvements are sufficient to support its expanding investment plans.

These three models cannot be judged solely by the scale of capital expenditures. The scale of orders determines how much revenue visibility there is for the future, revenue growth reflects the speed of demand realization, profit margins determine the quality of growth, and cash flow tests how much return these investments can ultimately leave behind.

This week's earnings reports are worth watching; rather than focusing on who spends the most, it is more about whether the three companies can each provide clearer answers regarding who will bear the costs of new computing power, where profits will come from, and how long it will take for cash returns.

I. Earnings Reports and Federal Reserve Decisions Coincide, Market Will Adjust Growth Expectations and Funding Costs Simultaneously

Microsoft and Alphabet are expected to announce their earnings after the market closes on October 28, while Amazon will follow on October 29. The Federal Reserve will hold a monetary policy meeting from October 27 to 28, and the interest rate decision will also be announced during this window. The specific release times are subject to company announcements.

Figure: The interest rate decision and the earnings reports from Microsoft and Alphabet are scheduled for early Thursday, while Amazon's will be early Friday. The figure marks the numbers and reference ranges to check at each node, with specific times subject to company announcements.

The current target range for the federal funds rate is 3.75% to 4.00%. According to a Bloomberg survey as of October 23, most analysts expect the rate to remain unchanged at this meeting, with 8 out of 64 respondents predicting a 25 basis point increase.

Interest rates and earnings reports affect valuations differently but will intersect at the same time. Interest rates affect the opportunity cost of capital and the returns required by investors, while earnings reports determine whether companies can support current valuations with stronger growth and cash flow.

If cloud business growth exceeds expectations and profit margins continue to improve, the market may be more willing to accept the cash flow pressures from earlier investments. Conversely, even if revenue continues to grow, as long as expenses continue to accelerate without a corresponding improvement in return guidance, investors may reassess the costs of expansion.

As of October 26, Microsoft closed at $532.60, up 1.54%. Alphabet closed at $316.80, down 1.06%. Amazon reported $249.42 in after-hours trading. The stock prices before the earnings reports have not provided a clear direction, and the upcoming operational data and management guidance will become more direct pricing references.

II. After $134.9 Billion Investment, the Financial Starting Points of the Three Companies Are Not the Same

Microsoft, Alphabet, and Amazon recently disclosed a combined capital expenditure of approximately $134.9 billion for the reporting period. Looking at the ratio of operating cash flow to capital expenditure, the pressure each company faces has already shown differences.

Figure: Operating cash flow is represented by blue bars, capital expenditure by red bars, and free cash flow by dark gray bars, with reporting periods for Microsoft FY2026Q4, Alphabet and Amazon 2026Q2, and Meta 2026Q3. Note: Free cash flow is calculated as operating cash flow minus capital expenditure, excluding principal repayments on finance leases. Meta reported a free cash flow of negative $2.12 billion, which includes differences in handling lease principal. Microsoft reported a capital expenditure of approximately $41 billion during the same period, which also involves finance leases. Different statistical methods should not be mixed directly; amounts are compiled data from data interfaces.

Microsoft's operating cash flow can still cover its capital expenditure for the quarter, leaving $19.64 billion in free cash flow. Alphabet and Amazon, however, had capital expenditures of $44.92 billion and $54.21 billion, respectively, exceeding their operating cash flow for the period, necessitating short-term gaps to be covered by cash reserves, financing, or other funding arrangements.

However, a negative free cash flow for a single quarter does not mean that the overall cash-generating ability of the company has deteriorated to the same extent. Observing over a longer period reveals clearer differences among the three.

Alphabet's free cash flow for the entire year of 2025 is approximately $73.27 billion, with about $4.26 billion remaining in the first half of 2026, turning negative in the second quarter, primarily reflecting the impact of soaring expenditures on current cash flow. Amazon's free cash flow for the entire year of 2025 is approximately $7.7 billion, while it fell to negative $26.99 billion in the first half of 2026, with rolling four-quarter free cash flow also turning negative, making cash flow pressure worth continuous tracking. Meta's free cash flow for the first three quarters totaled approximately $13.82 billion, with negative values concentrated in the third quarter. Microsoft has maintained positive values for the last four quarters.

Therefore, determining whether this round of investment is sustainable cannot rely solely on the sign of a single quarter. A more useful question is whether operating cash flow can grow in tandem with increasing capital expenditures and how long it will take for the company to expand free cash flow again.

Spending Is Still Climbing, Depreciation Pressure Will Continue to Transmit

Over the past six quarters, the capital expenditures of the four companies have generally increased. Alphabet and Microsoft reported capital expenditure growth rates exceeding 100% in the most recent reporting period, while Amazon and Meta were around 68% to 80%. This week's earnings reports will provide the latest data for Microsoft, Alphabet, and Amazon for calendar Q3 2026.

Figure: From Q1 2025 to Q2 2026, aligned by calendar quarters, Microsoft aligns its fiscal year quarters to calendar quarters, with its Q3 2026 being the first fiscal quarter of 2027. Amazon's operating cash flow has seasonality, with Q1 being the annual low point; cross-quarter comparisons should use annual data for reference.

The impact of expenditures does not stop at the payment period. After data centers, servers, and other computing devices are put into use, related costs will gradually reflect in depreciation and amortization. In the most recent reporting period, the year-on-year growth rate of depreciation and amortization for the four companies was approximately 17% to 44%, with Alphabet and Meta both exceeding 40%.

This means that even if new computing power begins to contribute revenue, profit margins may not immediately improve. New revenue needs to cover operating costs and depreciation, and when financing scales expand, interest costs must also be considered. The time lag between investment and return is precisely the financial variable that needs to be observed most closely in this round of AI infrastructure construction.

The source of funds is also worth noting. According to company financial data, Meta's long-term debt increased by approximately $22.2 billion in one quarter, rising from $58.74 billion to $80.92 billion. Changes in debt cannot alone prove that AI investment risks are rising, but as capital expenditures continue to expand, the combination of cash reserves, financing arrangements, and future cash flows will affect the company's ability to withstand fluctuations in the investment cycle.

From the ratio of rolling four-quarter free cash flow to market capitalization, Microsoft is about 1.7%, Alphabet about 1.4%, Amazon about -0.4%, and Meta about 1.8%, with market capitalization as of the close on October 26. During the same period, the yield on the U.S. ten-year Treasury bond was approximately 4.96%.

This set of data can only serve as a reference for valuation and cannot directly conclude that Treasury bonds are more attractive than tech stocks. Treasury bonds provide contractually agreed interest flows, while stock cash flows may grow with business expansion but can also be affected by investment, competition, and financing costs. For tech giants, a lower current free cash flow yield means that the market needs to see more convincing future growth to maintain existing valuations.

Figure: The horizontal axis represents the year-on-year depreciation and amortization for the most recent reporting period, and the vertical axis represents the rolling four-quarter free cash flow yield, with the dashed line representing the ten-year U.S. Treasury yield of 4.96%. Meta has the highest depreciation growth rate and yield, indicating that the pressure from depreciation has not yet been realized in cash returns, while Microsoft has the lowest depreciation growth rate and a positive yield, with Amazon being the only one with a negative yield.

III. Three Monetization Models: Computing Power Leasing, Self-Use Transformation, and Scale Expansion

All three need computing power, but the real difference lies in how computing power enters the income and profit statements.

| Company | Main Monetization Method | Recent Reported Cloud Business Growth Rate | Profit Margin and Order Situation | |------------|-------------------------------------|--------------------------------------------|-----------------------------------------------------------| | Microsoft | Azure rents computing power to enterprise customers | Company guidance 44% to 45%, Goldman Sachs expects 46% to 47% | Azure profit margin not separately disclosed comparable data | | Alphabet | Google Cloud rents computing power, also supports search and advertising AI | Actual growth 82% in Q2 2026, Q3 market consensus about 89%, Bank of America expects 93% | Q2 operating profit margin about 35%, last year about 21%, backlog orders $514 billion | | Amazon | AWS rents computing power to enterprise customers | Actual growth 37% in Q2 2026, Q3 market consensus about 35% | UBS expects 2027 operating profit margin about 46%, above market consensus of 38%, backlog orders $496 billion | | Meta | Computing power for internal use, returns reflected in advertising efficiency and AI product monetization | No directly comparable public cloud segment | Focus on advertising efficiency, pricing, and user engagement |

Table: Comparison of monetization paths for four companies. Institutional expectations are media citations and only represent the judgments of relevant institutions. Each company's business scope is different, and the growth rate and profit margin of cloud business should not be directly compared.

Microsoft and Amazon have relatively straightforward business paths, first building data centers and computing power, then providing cloud services to enterprise customers, generating revenue through contracts and actual usage. The speed of returns depends on capacity utilization, customer demand, pricing power, and equipment costs.

Alphabet's calculations are more complex. Google Cloud can directly rent computing power, but AI infrastructure also supports upgrades to search and advertising products. The same investment may support both cloud revenue and core advertising business simultaneously, with returns not fully corresponding to any one segment. Therefore, the market needs to observe both Google Cloud growth and whether AI investments can improve the competitiveness and monetization efficiency of the advertising business.

Meta does not have comparable public cloud rental business; computing power is mainly used for internal products and advertising systems. Investment returns ultimately need to be reflected through recommendation effectiveness, advertising conversion, pricing power, and user engagement. This path is not without commercial value, but it is harder to identify from a single metric than cloud service revenue, and the verification cycle may also be longer.

The combined backlog orders of Alphabet and Amazon are about $1.01 trillion, and the capital expenditure guidance for both companies in 2026 is about $425 billion, with the former being about 2.4 times the latter. Looking solely at order size, the visibility of future revenue is quite considerable, but backlog orders do not equate to cash already received, nor do they mean revenue can be recognized evenly in the short term.

Figure: Google Cloud backlog orders of $514 billion are about 2.5 times Alphabet's expenditure guidance upper limit of $205 billion, AWS backlog of $496 billion is about 2.3 times Amazon's guidance of about $220 billion, totaling about 2.4 times, with Microsoft not separately disclosing comparable data.

Whether orders can be converted into shareholder returns still depends on delivery cycles, contract execution, business profit margins, and subsequent capital expenditures. If order growth is accompanied by profit margin improvement, new investments are more likely to be accepted by the market. If revenue growth fails to drive profit margins, the scale of orders is insufficient to independently prove investment returns.

IV. Microsoft: Azure growth must meet expectations, and the commitment to free cash flow cannot fall short

The key for Microsoft is whether cloud business growth can support sustained expansion while fulfilling management's expectations for free cash flow.

According to media citations, Goldman Sachs expects Azure's constant currency growth rate to be 46% to 47%, higher than the company's guidance of 44% to 45%. Morgan Stanley views around 47% as a reference level supporting the current valuation. Both are institutional judgments, not company commitments.

If Azure's growth meets or exceeds institutional expectations, the market will have more reason to believe that new computing power is being converted into actual demand. If the results are only at the lower end of the company's guidance range, investors may further question whether capital expenditures are still increasing, whether revenue growth can be maintained, and when cash flow will restore stronger growth.

The scale of investment illustrates why this issue is important. Microsoft's capital expenditure for fiscal year 2026 is about $115.95 billion, an 80% year-over-year increase. According to Visible Alpha's consensus expectations cited by Goldman Sachs, capital expenditure for fiscal year 2027 is about $221 billion, a 52% year-over-year increase. The company's capital expenditure guidance for this quarter exceeds $50 billion, compared to about $19 billion in the same period last year.

At the same time, Microsoft commits to maintaining positive free cash flow for fiscal year 2027. Whether this commitment can be fulfilled ultimately depends on the growth of operating cash flow, the actual pace of capital expenditures, and related costs; the scale of investment alone does not indicate the outcome. According to media citations, Goldman Sachs expects Microsoft's free cash flow for fiscal year 2028 to be about $14.3 billion, indicating that even if the company continues to expand, the improvement in cash returns may still experience fluctuations.

The time labels of calendar years and fiscal years also need to be viewed separately. Microsoft's capital expenditure guidance for the calendar year 2026 has reportedly been adjusted from about $190 billion to about $175 billion. Morningstar analysis believes this is mainly related to the accounting treatment of lease reclassifications, and the actual construction plans have not been correspondingly reduced, so it cannot be simply understood as the company actively slowing down AI investments.

Microsoft's relative advantage lies in the fact that it still has positive free cash flow, with depreciation and amortization growth of about 16.8% year-over-year in the most recent reporting period, lower than the other companies. Goldman Sachs also expects Microsoft to add about 5GW of new online computing power in fiscal year 2027, with total computing power potentially reaching about 40GW by mid-2030. The self-developed chip Maia 300 is expected to reduce inference costs. All of the above are institutional views or predictions.

This financial report needs to assess three pieces of information together: whether Azure growth meets expectations, whether capital expenditure guidance continues to be revised upward, and how management explains the path to fulfilling free cash flow. A single impressive cloud business growth rate is not sufficient to answer all questions.

V. Alphabet: $514 billion backlog orders, can they be converted into higher profits?

Alphabet does not lack demand; the challenge lies in ensuring that the growth of the cloud business keeps pace with the speed of infrastructure investment.

According to Visible Alpha data, market expectations for Alphabet's Q3 revenue have been raised from $121.4 billion in April to about $127.9 billion, with the resilience of the advertising business being one of the supporting factors. In terms of cloud business, Bank of America expects Q3 revenue growth of 93%, higher than the market consensus of about 89%, mainly based on new capacity deployment and TPU external sales. All of the above are institutional expectations cited by the media.

Profit margin is another important indicator. In Q2 2026, Google Cloud's operating profit was about $8.8 billion, with an operating profit margin of about 35%, compared to about 21% in the same period last year. This improvement indicates that cloud business growth has begun to translate into operating profit, but whether it can be sustained depends on the revenue and cost structure after new capacity is utilized.

Alphabet has raised its capital expenditure guidance for 2026 to between $195 billion and $205 billion and stated that capital expenditures will continue to increase in 2027. Capital expenditures in Q2 reached $44.92 billion, and subsequent investments may remain high. Increased equipment will bring new revenue opportunities but will also gradually increase depreciation costs.

Alphabet's current cash flow situation is better understood in terms of the matching degree between investment timing and subsequent returns. Free cash flow for the entire year of 2025 is about $73.27 billion, with rolling four-quarter cash flow of about $53.27 billion. A single quarter turning negative does not mean that the rolling four-quarter cash creation ability has simultaneously turned negative.

The $514 billion backlog orders provide visibility for future revenue, but what truly determines their financial significance is the speed of order confirmation and delivery, as well as how much profit the revenue ultimately retains. If new capacity drives cloud revenue growth and profit margins continue to improve, the current cash flow pressure is more easily explained as a phase of investment during the construction cycle.

Conversely, if Q3 cloud business profit margins drop below 30% while order growth slows, then the issue is no longer just about capital expenditures being concentrated in a certain quarter; future revenue and profits may not be sufficient to support the pace of investment. This scenario is worth closely verifying in the financial report and conference call.

VI. Amazon: AWS growth is strong, but the financial cost of expansion is also rising

Amazon's challenge is to maintain AWS growth while controlling the cash flow consumed by expansion and explaining when new capacity can be converted into higher profits.

In Q2 2026, AWS revenue was about $42.2 billion, a 37% year-over-year increase, marking the fastest growth in 18 quarters. Backlog orders are about $496 billion. At the same time, the company has raised its capital expenditure plan for 2026 to about $220 billion, with management citing rising upstream costs such as memory as one of the influencing factors.

Cash flow is an important distinction between Amazon and Microsoft, Alphabet. Amazon's free cash flow for the entire year of 2025 is about $7.7 billion, dropping to negative $26.99 billion in the first half of 2026, with first-half capital expenditures equivalent to 138% of operating cash flow.

Seasonality needs to be considered here. Amazon's operating cash flow typically hits its annual low in the first quarter and is relatively high in the fourth quarter, so one quarter or half-year's results cannot be directly extrapolated to the entire year. However, the first-half capital expenditure's consumption of operating cash flow has significantly increased, and management still needs to provide clearer explanations.

According to media citations, UBS has raised its estimate of Amazon's capital expenditures for 2027 from about $250 billion to over $300 billion and expects free cash flow for 2027 to be close to zero or continue to be negative. The same report predicts AWS's operating profit margin for 2027 to be about 46%, above the market consensus of 38%, and forecasts AWS's new revenue for that year to be about $80 billion. UBS has also raised its target price from $318 to $348, maintaining a buy rating. These are institutional predictions, not confirmed operational results from the company.

The core of this set of predictions is whether higher investments and higher profit margins can be achieved simultaneously. Continuous expansion means the company expects demand to remain strong, but if the revenue and profits generated by new capacity are insufficient to cover the corresponding costs, the timeline for cash flow to turn positive may continue to be delayed.

Therefore, this financial report should not only focus on whether AWS growth exceeds the market consensus of about 35%. Capital expenditure guidance, AWS profit margin trends, and management's explanation of cash flow for 2027 need to be evaluated together. If expenditures continue to rise while profit margins do not improve simultaneously, the market will need to reassess the timeline for cash flow recovery.

VII. The conference call needs to address the operational issues of each of the three companies

The verification focus of the three companies is not the same; after the financial report is released, tracking can revolve around the following indicators.

Microsoft: Can Azure growth and cash flow commitments coexist?

Can Azure reach or exceed the guidance range of 44% to 45%? This is a direct test of cloud demand. Beyond growth rates, we also need to see if capital expenditures continue to be revised upward, and how management explains the commitment to positive free cash flow in fiscal year 2027. If revenue growth and cash flow improvement do not occur simultaneously, the market's judgment on investment returns will need to be adjusted.

Alphabet: Can Google Cloud's growth continue to translate into profits?

The backlog of $514 billion provides visibility into future revenue, while the operating profit margin of about 35% in the second quarter offers a benchmark for current profitability. The scale of orders and profit margins need to be observed in tandem; whether order growth can continue and whether new revenue can offset depreciation and rising costs will determine how the market understands the necessity of sustained expansion.

Amazon: Can future spending match AWS profit margins?

AWS is still growing rapidly, but capital expenditures are increasingly consuming cash flow. The guidance for capital expenditures in 2027, expectations for AWS profit margins, and management's judgment on cash flow recovery are interrelated variables. If investments continue to rise while profit improvements are not evident, the cash flow breakeven point may be pushed further back.

The impact will not stop with the cloud vendors themselves. The order expectations for computing chips, storage, and power equipment suppliers are directly related to the investment plans of large cloud companies. If the three companies continue to expand capacity, the visibility of upstream demand may be supported. If the pace of investment slows, the relevant supply chains will also need to reassess order and revenue expectations.

Conclusion: The difference among the three companies lies in how to prove that investments are generating returns.

This week's earnings reports will not provide a definitive answer to AI infrastructure investments, but they will clarify the return paths for the three companies.

Microsoft needs to demonstrate that Azure growth, capital expenditures, and the commitment to free cash flow can coexist. Alphabet needs to ensure that cloud business profit margins keep pace with revenue and infrastructure investment expansion. Amazon must explain how AWS growth and profit improvements can sustain the continuously rising scale of investment.

The business models of the three companies differ, and one cannot judge who is closest to breaking even based solely on one metric. Azure growth rate, Google Cloud profit margin, and AWS future capital expenditure and profit margin guidance correspond to different operational constraints. They collectively point to one question: can the revenue and profits generated by new computing power form sufficient cash returns before the accumulation of depreciation, financing, and subsequent expansion costs?

If the data and guidance disclosed this week show synchronized improvements in revenue growth, profit margins, and investment efficiency, the market will have reason to continue granting a long-term growth premium. If investments continue to expand while the timing of returns keeps shifting further out, valuations may also adjust accordingly.

What is truly worth comparing this earnings week is who can more clearly explain why continued investment is necessary and how these investments will translate into operational returns; the absolute value of spending is secondary.

Past performance does not guarantee future results.

Data Explanation

• Financial data, operating cash flow, capital expenditures, free cash flow, and depreciation from the financial reports and data interfaces of the four companies, as of October 2026. Microsoft uses FY2026Q4, Alphabet and Amazon use Q2 2026, and Meta uses Q3 2026.

• Meta's free cash flow and debt, media citations from Dow Jones market data and company financial reports.

• Earnings report schedule and interest rate expectations, media citations from company announcements, Federal Reserve schedules, and Bloomberg surveys.

• Institutional forecasts, views from Goldman Sachs, Morgan Stanley, Bank of America, UBS, Visible Alpha, Morningstar, etc., are media citations and represent the judgments of the relevant institutions at specific times.

• Valuation and market data, market capitalization and U.S. 10-year Treasury yield use closing data from October 26, 2026. The free cash flow yield is an estimate of rolling four-quarter free cash flow divided by market capitalization, not equivalent to expected total stock returns.

• Statistical limitations, the disclosure and calculation methods for financing leases, capital expenditures, and free cash flow may vary among companies. The institutional expectations, ratios, and scenario analyses discussed in this article should not be regarded as confirmed results by the companies.

Disclaimer: The content of this article is for general information and market commentary only, compiled based on publicly available information as of the time mentioned. Relevant market data, expectations, and probabilities may change with market conditions. The views and investment strategies of third-party institutions, analysts, or other individuals cited in this article represent the opinions of the relevant third parties at specific times and do not represent the views or recommendations of BIT. This article does not constitute investment advice, investment research, solicitation, or recommendation of any securities, investment products, or trading strategies, nor should it be the basis for any investment decision. Financial markets involve risks, and securities prices and market performance may fluctuate; past performance and historical market trends do not represent or guarantee future results. Investors should independently assess the relevant risks based on their own circumstances and seek professional advice when necessary.