Amazon Web Services grew 39% and Microsoft's Azure 48%. Alphabet fell 12.6% on Thursday after reporting negative free cash flow, and Amazon fell about 7% overnight after a $42.4 billion cash outflow over the past year. Microsoft, which is still generating cash but is borrowing anyway, ended flat.
The three largest cloud providers have now told investors what their third quarters looked like. Demand was not the problem for any of them. What separated the stocks was how they are paying for the data centers.
Demand: strong everywhere
Amazon Web Services grew 39% in the third quarter, to about $46 billion. Microsoft's Azure grew 48%. Growth on that scale is not the profile of a business short of customers.
Cash: where they diverge
Alphabet reported negative free cash flow on Wednesday and fell 12.64% on Thursday to $283.82. It had already covered last quarter's cash shortfall with about $41 billion of new bonds and stock.
Amazon said on Thursday that its free cash flow over the past 12 months was an outflow of $42.4 billion, against an inflow of $14.8 billion a year earlier. The company said the swing was "driven primarily by a year-over-year increase of $94.8 billion in purchases of property and equipment." It is holding its 2026 cash capital spending plan at about $220 billion. Its shares were about 7% lower in overnight trading.
Microsoft spent $45.2 billion on capital projects in its latest quarter, about $5.5 billion less than analysts expected because some third-party data-center capacity arrived late, and generated $18.6 billion of free cash flow. It is selling about $25 billion of bonds, according to reports, its first U.S. investment-grade deal since 2017. Its shares closed down 0.16%.
What the market is pricing
The pattern is consistent with investors drawing a line at cash, though it is not the only explanation. Amazon also narrowly missed revenue and earnings estimates and guided below them, and Alphabet's advertising revenue missed. The company with positive free cash flow held steady even while borrowing. The two that reported cash outflows were sold hard, although the periods differ: Alphabet's outflow was for the latest quarter and Amazon's for the past 12 months. Over 12 months, Alphabet's free cash flow is still positive, by our arithmetic from its quarterly reports.
That does not mean investors doubt the spending will pay off. Jassy, Amazon's chief executive, projected AWS revenue growth of more than 40% in both 2027 and 2028. It means that, with 10-year Treasury yields near 5%, the cost of funding the build-out has become part of the valuation.
The spending also shows up in the wider economy. Third-quarter GDP grew at a 3.4% annual rate, and the government said growth in equipment investment was led by information-processing equipment, mainly computers and peripherals.
Funding test or buying window?
The funding-test view: cash outflows at two of the three, in the latest quarter at Alphabet and over 12 months at Amazon, mean more borrowing and share issuance ahead, more supply of long-dated technology debt, and returns that depend on growth staying above 40% for years.
The buying-window view: cloud growth is accelerating, not slowing; Amazon reported a record operating margin; and the companies being sold are investing in capacity their customers are asking for.
What to watch
Pricing on Microsoft's bond sale; Amazon's capital spending guidance for 2027, which it has said will be meaningfully higher; Alphabet's next financing move; Treasury's borrowing estimates on Nov. 2; and whether chip and equipment suppliers continue to trade with the spenders or apart from them.