By Panos Mourdoukoutas

Microsoft, Alphabet, and Amazon reported strong earnings last week, yet Wall Street wasn’t impressed. Shares of all three closed lower after the results, as investors looked past revenue and profit and zeroed in on how much cash the companies are burning to build artificial intelligence infrastructure.

For years, the trio has rewarded shareholders with superior market returns, thanks to what Warren Buffett calls “moats,” the barriers to entry that shield a business from competitors.

Microsoft pairs a powerful global brand with network effects: The more people use its products, the more valuable it becomes. More than one billion people use Windows, and that network, along with the “lock-in” it creates, makes the company’s market nearly impossible for rivals to invade.

Alphabet’s search engine and Amazon’s online marketplace enjoy similar advantages, dominating their fields.

But investors in these members of the “Magnificent Seven”—Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla, a group of seven companies with outsized influence on the stock market—are now weighing different metrics. Revenue growth and earnings per share still make the headlines. Cash flow, and the AI-related capital spending that is draining it, increasingly drives trading.

The market’s reaction varied. Alphabet and Amazon suffered heavy sell-offs, while Microsoft was less affected.

All three posted strong cloud growth. Alphabet, however, reported slower search-revenue growth, and Amazon reported slower advertising growth along with a retail miss. Both companies forecast higher AI capital spending in 2027. Microsoft said it expects its AI-driven data-center investments to continue.

Growing capex and weaker cash flow leave less money for buybacks and dividends, pushing companies toward the debt markets.

Microsoft: Shrinking Cash

Microsoft’s results, reported on Oct. 28, illustrate the shift in investor focus. Revenue for its first quarter of fiscal year 2027, starting July 1, rose 19 percent to $92.3 billion, topping consensus estimates. Earnings per share climbed 32 percent and beat forecasts, driven by the Azure cloud business.

Capital expenditures on property and equipment totaled $39.4 billion, nearly double the $19.4 billion spent in the same period last fiscal year. The company expects capital spending to further increase in the second fiscal quarter.

Investors also focused on a decline in free cash flow. For the 12 months ending Sept. 30, the company’s free cash flow totaled $66.99 million, down 6.46 percent from 2025, following declines of 3.23 percent and 24.54 percent in the previous two years.

On Oct. 29, the company announced it would issue $25 billion in corporate debt.

Amazon: Negative Free Cash Flow

Amazon’s report shows the cash-burn problem most clearly. Third-quarter revenue rose 12 percent from a year earlier, just short of forecasts, and earnings per share came in slightly below analysts’ expectations.

Capital expenditures totaled $75.9 billion, exceeding operating cash flow by $33.5 billion, and the company expects spending to rise further in 2027.

Free cash flow for the 12 months ending June 30 was negative $7.604 billion, compared with $18.184 billion for the 12 months ending June 30, 2025.

Alphabet Profit Slips

Alphabet’s third-quarter revenue met analysts’ expectations, but net income fell 25 percent. Capital expenditures reached $51.4 billion, up from $24 billion a year earlier, and exceeded operating cash flow by $9.1 billion. The company’s chief financial officer said capital spending would increase significantly in 2027.

Alphabet’s free cash flow growth rate has been tapering off in the last couple of years.

Spending Outpaces Revenue

Yigit Can Yaman, founder of EquiReason, told The Epoch Times that the three companies’ capital expenditures are significantly outpacing the revenues they are expected to generate.

He said he doesn’t see demand as the problem.

“Google Cloud’s operating margin rose to 36.2 percent from 23.7 percent; AWS’s [Amazon’s cloud computing business] rose to 38.7 percent from 34.6 percent. Microsoft’s commercial remaining performance obligation, contracted revenue not yet recognized, grew 73 percent to $677 billion. Customers are paying, and paying at better margins,” Yaman said.

For investors, he said, the question has shifted from “is AI demand real?” to “how long can operating cash flow fund the build-out, and when does cloud revenue growth catch up with capex growth?”

Neythan Jayaharan, founder of Agentic Sovereign Capital, also pointed to cash flow.

“The takeaway for me isn’t the earnings, which were mostly fine; it’s the cash flow, because all three are now spending faster than their businesses bring money in, and they’re borrowing to cover the gap,” he told The Epoch Times.

“What’s still unproven is whether the hundreds of billions going into data centers earn a decent return, and the returns on Alphabet’s capital have already fallen from about 76 percent to 42 percent as the spending has ramped up.”

He said that’s why Amazon and Alphabet shares fell sharply after their earnings releases.

A Concentrated Market

Izhar Haq, a professor of accounting at the College of Management at Long Island University, said he is worried about Big Tech’s effect on broader market indexes such as the S&P 500, which is heavily weighted toward technology.

According to YX Insights, the “Magnificent Seven” stocks account for about 35 percent of the S&P 500’s market capitalization.

“Since the market leans heavily on these stocks and AI-related investments have become a significant part of the economy, any loss of confidence in AI investments can have a significant impact on these stocks as well as the overall economy,” Haq said.

“This week’s market reaction to Microsoft, Google, and Amazon earnings announcements reflects the dynamics of AI investments.”