Alphabet and Microsoft both came in below capital spending estimates hours before a growth report the Fed Chair expects to be led by business investment. Spending is still far above last year, and Alphabet borrowed heavily to fund it. Nasdaq futures fell 1.2% while Dow futures rose.
On Wednesday afternoon Federal Reserve Chair Kevin Warsh told reporters that business investment was "likely rising at about a double-digit pace" and that "high-tech investment is leading the acceleration." A few hours later, two of the biggest sources of that investment reported spending less than Wall Street had pencilled in.
Alphabet's purchases of property and equipment were $51.36 billion in the third quarter, against an analyst estimate of $55.09 billion. Microsoft's capital expenditures, including finance leases, were $45.2 billion, against an average estimate of $50.7 billion. Both numbers missed. Neither is small.
Below plan, above last year
Alphabet's capital spending rose 114% from a year earlier, the fifth straight quarter of growth between 83% and 114%, and the company held its 2026 forecast of $195 billion to $205 billion. Microsoft's spending rose about 30%. Its finance chief, Amy Hood, said the shortfall came because "some third-party capacity deliveries we expected in Q1 were delayed," and guided to more than $50 billion in the current quarter.
Microsoft also trimmed its calendar 2026 capital spending outlook to about $170 billion, from about $175 billion previously, and Hood attributed that to the same delays. So on the companies' own accounts the undershoot looks more like timing than retreat, though Microsoft's full-year figure did come down. That distinction matters for the macro read, because the Fed's statement on Wednesday described capital investment as "robust." If the biggest spenders are slipping against plan because equipment is late rather than because demand has faded, the investment engine is intact but less predictable quarter to quarter.
Who is paying for it
The other side of the spending is how it is funded. Alphabet's free cash flow was negative $9.07 billion in the quarter, after negative $5.86 billion in the second quarter. To cover the gap it raised about $28.7 billion from senior unsecured notes and $12.4 billion by selling shares into the market, and it has $27.6 billion of that equity program left. Its long-term debt stood at $125.1 billion at the end of September, up from $46.5 billion at the end of 2025, an increase of about $78.6 billion in nine months.
Meta, which reported a week earlier, also posted negative free cash flow of $2.12 billion while guiding 2026 capital spending to $135 billion to $145 billion.
That is where the AI build-out meets the bond market. Corporate borrowing on this scale adds to the supply of long-dated debt investors must absorb at the same time as Treasury issuance, and the long end of the Treasury curve is where pressure has been building.
A curve that steepened after the Fed
The Fed held its target range at 3.75% to 4.00% on Wednesday in a 10-2 vote. Treasuries closed with the 2-year yield down 0.4 basis point at 4.731% and the 10-year up 5.2 basis points at 5.044%, its largest daily rise since Sept. 28. The 30-year closed near 5.36%. Futures pricing for a December rate increase rose to about 85% from 78% a day earlier.
A falling 2-year alongside rising odds of a December hike is an unusual combination. One reading is that traders see a December move as likely but the path beyond it as limited. Another is that the long end is demanding more compensation for inflation and supply risk regardless of what the Fed does next.
The overnight split
Equity futures sorted the news by exposure. Nasdaq 100 futures were down about 1.2% at 4:44 a.m. Eastern, S&P 500 futures were down about 0.3%, and Dow futures were up about 0.5%. Alphabet was indicated about 10% lower before the open, while Microsoft was indicated about 3% higher. In Asia, Seoul's Kospi fell 1.2% as Samsung shares dropped after its results, while Japan's Nikkei rose 1%.
Two ways to read the misses
The peaking view: two of the largest spenders fell short of expectations in the same evening, Microsoft trimmed its full-year spending outlook, Alphabet and Meta are both burning cash, Alphabet is funding growth with debt and stock sales, and the market punished the AI-heavy Nasdaq while rewarding the Dow.
The timing view: spending is still up 30% to 114% from a year ago, Alphabet held its full-year plan and its finance chief said 2027 spending will rise significantly, Microsoft attributed both its shortfall and its lower 2026 figure to delayed deliveries and guided to more than $50 billion next quarter, and Google Cloud revenue more than doubled.
What to watch
The 8:30 a.m. GDP release, where economists polled by the Wall Street Journal expect annualized growth of 3.1%, and especially the equipment and intellectual-property lines; September PCE inflation, expected at 3.7% headline and 3.1% core; the $44 billion 7-year note auction at 1 p.m.; Amazon's capital spending figures after the close; and Treasury's quarterly refunding on Nov. 4.