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Big Tech’s AI growth (mostly) impressed Wall Street
Brief
Alphabet and Microsoft led Thursday’s earnings beat driven largely by enterprise AI demand: Alphabet reported Q1 2026 revenue of $109.9B (vs $107.1B expected) and EPS $5.11, with Google Cloud at $20.0B (63% YoY), operating profit rising to $6.6B, a cloud backlog >$460B, API traffic at 16 billion tokens/min, Gemma 4 at 50M downloads, and raised 2026 capex guidance to $180–195B; Waymo now does 500k paid rides/week. Microsoft posted $82.9B revenue and $4.27 EPS, Azure growth ~40%, Microsoft Cloud $54B (+29% YoY), an AI business >$37B ARR (+123%), >20M Microsoft 365 Copilot paid seats, GitHub Copilot in ~140k orgs, $31.9B quarter capex and ~ $190B calendar-year capex target. The newsletter also flags a congressional probe into U.S. firms using Chinese models (Anysphere/Cursor used Moonshot Kimi K2.5; Airbnb used Alibaba Qwen), a move that could favor domestic labs but raise costs and slow inference-price declines.
Why it matters
Alphabet Q1 2026: revenue $109.9B vs $107.1B expected and EPS $5.11 vs $2.62 expected; Google Cloud revenue $20.0B (63% YoY) with operating profit rising from $2.2B to $6.6B; Google Cloud backlog grew to over $460B; API demand rose to 16 billion tokens/min (from 10B in Q4 2025); Alphabet raised 2026 capex guidance to $180–195B and said Waymo now handles 500,000 paid rides weekly (investor reaction: stock up ~8%).
Key details
- Microsoft FY26 Q3: revenue $82.9B vs $81.4B expected and EPS $4.27 vs $4.06; Azure grew ~40% and Microsoft Cloud revenue was $54B (up 29% YoY); Microsoft reports its AI business surpassed $37B ARR (up 123%), Microsoft 365 Copilot has >20M paid seats (seat additions +250%), GitHub Copilot is used by ~140,000 organizations; capex in quarter $31.9B and company expects roughly $190B calendar-year capex (investor reaction: neutral).
- Policy/supply-chain note: two House Republicans are probing U.S. companies’ use of Chinese AI models — naming Anysphere (Cursor) which used Moonshot’s Kimi K2.5 and Airbnb which built on Alibaba’s Qwen — a potential constraint that could shift training to domestic labs and affect startup costs and inference pricing.
- Market/operational signals: Both hyperscalers attribute rapid cloud growth to enterprise GenAI adoption (Alphabet said products built on its GenAI models grew nearly 800% YoY; Google reported many customers processing trillions of tokens; Microsoft cited capacity constraints and a 40% improvement in inference throughput for its most-used Copilot models), driving materially higher GPU/CPU capex and expanded data‑center buildouts.