Alphabet & Microsoft Earnings Preview: AI Cloud Growth Takes Center Stage

Magnificent Seven giants Alphabet GOOGL) and Microsoft MSFT) are set to report their quarterly results after market hours on Wednesday, October 28, putting two of the world's largest artificial intelligence and cloud computing companies in the spotlight.

With AI spending reaching unprecedented levels, Wall Street will be watching whether accelerating cloud demand, new AI products, and enterprise adoption can justify their massive infrastructure investments.

Alphabet's Q3 Expectations: Google Cloud, Gemini & AI Search

The Zacks Consensus Estimate calls for Alphabet to post Q3 earnings of $2.94 per share, up more than 2% year over year, with revenue excluding traffic acquisition costs (ex-TAC) projected to jump nearly 28% to $111.8 billion.

Investors will be particularly focused on Google Cloud, which posted exceptional 82% revenue growth in Q2, alongside the continued expansion of Google's Search advertising and YouTube businesses.

Based on Zacks estimates, Google Cloud revenue is projected to soar 92% to $29.15 billion compared to $15.15 billion in Q3 2025.

Alphabet's recent introduction of Gemini 4 Argon and its new Gemini enterprise AI agent adds another potential growth catalyst as the company expands AI capabilities across Google Workspace, Search, and cloud services.

However, investors will also be scrutinizing Google's AI search monetization, competition from alternative AI platforms, and rising data center expenditures, with Alphabet forecasting annual capital spending of $195-$205 billion.

Microsoft's Fiscal Q1 Expectations: Azure, Copilot & AI Infrastructure

Microsoft is expected to report fiscal first-quarter earnings of $4.71 per share, representing 14% growth from the prior year. Revenue is projected to rise more than 16% to $90.58 billion.

Microsoft’s cloud business remains a major growth catalyst, with Microsoft Cloud revenue jumping 27% YoY to $59.3 billion last quarter, while Azure and other cloud services revenue surged 43%.

Encouragingly, Microsoft expects Azure revenue growth to accelerate to 44-45% in constant currency during Q1, with Intelligent Cloud revenue projected at $40.95-$41.25 billion, representing 33-34% annual growth.

Investors will also be monitoring the adoption and monetization of Microsoft 365 Copilot, its expanding AI-agent capabilities, and enterprise cloud contracts. Microsoft's growing infrastructure investments, with quarterly capital expenditures potentially exceeding $50 billion, will be another critical area to watch.

While demand remains robust, higher depreciation expenses and the costs of expanding AI infrastructure could pressure cloud profit margins.

GOOGL vs. MSFT: Performance & Valuation Comparison

Year to date, MSFT has risen 10%, while GOOGL is up a modest 3%, with both underperforming the broader indexes amid rising CapEx concerns.

Over the last three years, however, Alphabet’s return of nearly 160% has outperformed the broader market, while Microsoft’s roughly 60% gain has trailed the S&P 500 and Nasdaq.   

At recent prices of around $320 a share for Alphabet stock and $530 for Microsoft shares, GOOGL trades at roughly 20X forward earnings, compared with 25X for MSFT.

Alphabet's more attractive valuation provides some appeal, particularly considering its accelerating cloud growth and established advertising businesses.

Meanwhile, Microsoft's premium reflects its enterprise software leadership, recurring revenue streams, and deeply integrated Azure and Copilot ecosystem.

Bottom Line

Both companies have compelling AI growth opportunities heading into Wednesday's earnings reports, but Alphabet appears to offer the more attractive valuation and potential upside if Google Cloud and AI monetization exceed expectations.

Reflecting this, along with a more favorable trend of positive earnings estimate revisions, Alphabet stock currently sports a Zacks Rank #2 (Buy), while Microsoft lands a Zacks Rank #3 (Hold).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research