Microsoft vs Alphabet AI Capex: Corrected 2026 Cash Flow, Backlog and Azure Capacity

The main comparison holds up against the companies' own filings and earnings calls. Several of the supporting numbers do not. Two of the Alphabet figures are a quarter out of date, and the Microsoft capex figure is attached to the wrong period. The corrected numbers change the picture, especially for Alphabet.

The Headline Numbers, Verified​

Microsoft (fiscal Q4 2026, ended June 30; reported July 29):

• Revenue was $90 billion, up 18% (17% in constant currency), according to Microsoft's earnings call transcript.
• Azure and other cloud services revenue grew 43%. Full-year Azure revenue passed $100 billion. Full-year Microsoft Cloud revenue was more than $214 billion, and Microsoft said nearly 90% of it came from customers outside frontier model companies.
• Microsoft 365 Copilot passed 30 million paid seats. Net paid seat additions more than doubled compared with the previous quarter.
• Capital expenditures were $41 billion including finance leases. Cash paid for property and equipment was $35.8 billion. Operating cash flow was $55.4 billion and free cash flow was $19.6 billion.
• Commercial remaining performance obligation (RPO) grew 84% to $678 billion. Excluding OpenAI, RPO grew 25%.

Alphabet (Q2 2026, ended June 30; reported July 22):

• Revenue was $119.8 billion, up 24%, according to Alphabet's SEC-filed earnings release.
• Google Cloud revenue grew 82% to $24.8 billion. Google Cloud operating income was $8.8 billion, up from $2.8 billion a year earlier.
• Search and other revenue grew 17%, YouTube ads 13%, and subscriptions, platforms and devices 15%.
• Operating cash flow was $39.1 billion. Purchases of property and equipment were $44.9 billion, which left free cash flow at negative $5.855 billion.

The core contrast is accurate. In this quarter, Microsoft's capex was covered by operating cash with money left over, and Alphabet's was not.

Summary: 24/7 Wall St.'s main quarterly figures for growth, capex and free cash flow match the primary sources.

Where the Numbers Drift​

Alphabet's capex guidance is two revisions old​

24/7 Wall St. says Alphabet guided 2026 capex to $175 billion to $185 billion. That was Alphabet's first range for the year, and it has been raised twice. In April, the company raised its 2026 capex guidance to between $180 billion and $190 billion, up from $175 billion to $185 billion. Then, on the July call, CFO Anat Ashkenazi said: "we are updating our full year 2026 CapEx guidance range to $195‑205 billion, up from our previous estimate of $180‑190 billion."

The midpoint is now $200 billion, about $20 billion above the figure 24/7 Wall St. used. BigGo Finance's summary of the call also reports that Ashkenazi confirmed that 2027 spending will significantly exceed 2026's level.

The "over $460 billion" backlog is from Q1​

24/7 Wall St. marks this figure as Q1 in its own table, which is correct. Google Cloud's backlog reached $462 billion in Q1, nearly double the prior quarter. It had already grown by the July call. Google Cloud's backlog increased by more than $50 billion sequentially, reaching $514 billion in the second quarter. Alphabet also gave a timeline: the majority of the backlog is related to typical GCP contracts from a broad mix of customers, and it expects to recognize just over 50% of the total backlog as revenue over the next 24 months.

The two companies disclose different timeframes. Microsoft says about 30% of its $678 billion RPO will be recognized in the next 12 months, with a weighted average duration of 2.3 years. Alphabet uses a 24-month window. Treat any direct comparison of the two with caution.

Microsoft's "$175 billion in fiscal 2027" is a calendar-year number​

24/7 Wall St. says Microsoft expects to spend about $175 billion on capex in fiscal 2027. In the transcript, Amy Hood ties that figure to calendar year 2026. Starting in fiscal 2027, Microsoft extended the estimated useful life of its datacenters and office buildings from 15 to 25 years. That moves more future datacenter leases from finance leases, which count as capex, to operating leases, which do not. Hood said the company's calendar 2026 investment plans were otherwise unchanged, and that the accounting shift brings the expected figure to roughly $175 billion.

For fiscal 2027, Microsoft said only that capex will grow year over year and that it expects to stay free-cash-flow positive. It guided to more than $50 billion of capex in fiscal Q1, which includes the lease reclassification.

This matters when comparing the two companies. Part of the apparent gap between Microsoft's and Alphabet's capex comes from how leases are classified. Hood also said lease payments reduced operating cash flow, so the effect on reported free cash flow is not a simple one.

Summary: Updated to current figures, Alphabet plans to spend more and has a larger contracted backlog than 24/7 Wall St. reported. Microsoft's reported capex is partly a product of an accounting change.

Two Business Models​

Microsoft sells access and bills for usage​

The transcript shows Microsoft's approach clearly. Hood said demand still exceeds supply, so each efficiency gain in the CPU and GPU fleet and each faster capacity deployment was "quickly monetized" within the quarter. Microsoft said it cut the time from delivery to live service for new GPUs in its largest regions by nearly 50% over the fiscal year.

Hood also explained why Microsoft thinks the spending carries limited risk. About two-thirds of capex goes to short-lived CPUs and GPUs, which have relatively short lead times. If demand weakens, Microsoft can slow purchases of what she called the largest component of the cost structure. Land and building construction make up a smaller share, and much of that timing can be changed.

Satya Nadella described the platform as keeping the "harness" separate from the model, so customers can swap one model for another. Microsoft earns money whichever model a customer chooses.

Alphabet builds more of the stack itself​

Alphabet runs its own TPUs, Gemini models, Search and YouTube, and it has started selling TPU hardware directly. It started delivering TPU systems to customer data centers in the second quarter, expects to recognize a relatively small portion of revenue from existing TPU system sales agreements this year, and anticipates the vast majority will be realized in 2027. So a real share of its capex is tied to revenue that has not been recorded yet.

Alphabet is also short of capacity. It plans to expand the use of third‑party capacity in Q3 as a bridging strategy while it builds out more internal capacity, and it warned of modest margin pressure in the near‑term.

How Alphabet is paying for it​

The SEC filing supports part of 24/7 Wall St.'s description of the financing. In June, Alphabet raised $49.6 billion in net proceeds from Class A and C stock and mandatory convertible preferred stock. It also raised $20.3 billion from senior unsecured notes during the quarter, for about $70 billion in total. It set up a $40 billion at-the-market stock program, mainly to cover tax obligations on employee equity grants, and had sold no shares under it as of June 30.

On buybacks, the release does not say they were "suspended." Its cash flow statement does show zero stock repurchases in Q2 and zero for the first half of 2026, compared with $28.3 billion in the first half of 2025. In practice, buybacks stopped, but no formal suspension is documented in the release.

Summary: Microsoft's model depends on high utilization and short-lived hardware. Alphabet's depends on owning more layers and carries more near-term cash strain, with revenue from TPU sales expected mostly in 2027.

Why One Quarter of Free Cash Flow Doesn't Settle It​

Microsoft had positive free cash flow this quarter and Alphabet did not, but the longer view is less one-sided:

• Trailing free cash flow is still positive. Alphabet's trailing-12-month free cash flow was $53.3 billion. The previous three quarters were positive at $24.5 billion, $24.6 billion and $10.1 billion. The trend is falling fast, but the company is not losing cash overall.
• Cloud is profitable at Alphabet. Google Cloud's operating income tripled year over year. According to Investing.com's call transcript, operating margin increased from 20.7% in the second quarter last year to 35.6%.
• Alphabet's earnings include a one-time gain. Alphabet reported a $99.0 billion gain on equity securities, mostly unrealized. It added $77.1 billion to net income, or $6.26 of the $9.11 diluted EPS. Any earnings-based valuation that ignores this gain overstates Alphabet's recurring profit.
• Microsoft's backlog is concentrated. The transcript notes that including OpenAI, RPO grew 84%, and excluding it, 25%. Microsoft said all sequential RPO growth came from customers outside frontier model companies, which does address some of the concentration concern.

A few of 24/7 Wall St.'s claims could not be checked against the sources used here: the price-to-earnings multiples, the one-year stock returns, the "over 60%" GitHub Copilot revenue growth, the 11,000-model count and the quote about Amazon. This article does not repeat them as confirmed. The primary sources also do not support treating either stock as a buy.

What It Means for Windows and Azure Admins​

This is investor news, but it affects IT budgets:

1. Azure capacity is still limited. Hood said demand continues to exceed supply and that quarterly Azure growth can vary with capacity timing. If you plan GPU-heavy deployments, expect regional availability limits and plan quota requests early.
2. Copilot pricing is moving toward usage-based billing. Microsoft said GitHub Copilot's June business model change aligned pricing with usage, and that GitHub Copilot consumption was stronger than expected. For Microsoft 365, the company said it added usage-based billing products alongside per-seat licensing in July. Budget owners should watch consumption alongside seat counts.
3. Premium SKUs are part of the plan. Microsoft credited Copilot, E5 and "early traction in E7" with raising average revenue per user. Expect licensing proposals to push toward higher tiers.
4. Google Cloud is also short on capacity. Organizations comparing clouds will find that neither vendor has much spare capacity right now.

The Bottom Line​

24/7 Wall St. is right about the core point. In the quarter ending June 30, Microsoft turned heavy AI spending into $19.6 billion of free cash flow, and Alphabet's $44.9 billion capex quarter pushed its free cash flow below zero. The analysis relies on outdated Alphabet numbers, though. Updated, Alphabet is spending more than reported, with 2026 guidance of $195 billion to $205 billion, and has a larger contracted backlog of $514 billion. Microsoft's $175 billion figure is a calendar-2026 number reduced by a change in lease accounting.

The question for both companies is how fast backlog turns into revenue. Microsoft expects about 30% of its $678 billion over the next 12 months. Alphabet expects just over half of its $514 billion over 24 months, with TPU revenue weighted toward 2027. Both reports should be read with those timelines in mind.