Alphabet said on 28 October 2026 that it spent $51.4 billion on property and equipment in the third quarter, against $42.3 billion of cash from operations. Microsoft, reporting the same evening, put its quarterly additions to property and equipment at $39.4 billion, against $58.0 billion of cash from operations.
By our arithmetic from the two cash flow statements, Alphabet’s capital spending equalled 121% of its operating cash flow in the quarter. Microsoft’s equalled 68%.
Business Pill · Free Cash Flow
An evergreen Business Engineer explainer on free cash flow, the cash a company has left after capital expenditures. It explains the general idea only and does not discuss Alphabet.
The key insight: By our arithmetic from the two releases, Alphabet spent 121% of its third-quarter operating cash flow on property and equipment, and Microsoft spent 68%.
We divided each company’s cash spent on property and equipment by its net cash from operations, for the last five calendar quarters. Every input comes from the companies’ own filings; the ratios are ours.
Alphabet: 49% in July to September 2025, 53% in October to December, 78% in January to March 2026, 115% in April to June and 121% in July to September. Alphabet’s capex has exceeded its operating cash flow in each of the last two quarters.
Microsoft: 43% in July to September 2025, 84% in October to December, 66% in January to March 2026, 65% in April to June and 68% in July to September. Microsoft’s April to June figures are our arithmetic: its fiscal 2026 10-K totals minus the nine-month totals in its March 10-Q.
Over the trailing twelve months, Alphabet’s release puts capex at $159.8 billion against operating cash flow of $179.6 billion, a ratio of 89% by our arithmetic. Microsoft’s four quarters sum to $135.9 billion of additions against $195.9 billion of operating cash, or 69%.
Capital spending (cash spent on property and equipment) as a percentage of net cash from operations, Alphabet and Microsoft, five calendar quarters to 30 September 2026; below the bars, Alphabet free cash flow as Alphabet defines it. The ratios are our arithmetic. Sources: Alphabet Q3 2026 release; Microsoft FY27 Q1 release (8-K Ex. 99.1), FY26 10-Qs and FY26 10-K.
Two Different Cash Positions
Capex (cash spent on property and equipment) as a share of net cash from operations, quarter to 30 September 2025 vs quarter to 30 September 2026: Alphabet 49% to 121%, Microsoft 43% to 68%. Ratios are our arithmetic. Sources: Alphabet Q3 2026 release; Microsoft FY27 Q1 release (8-K Ex. 99.1), 28 October 2026.
Alphabet’s free cash flow, as it defines it, was negative $9.1 billion in the third quarter and negative $5.9 billion in the second. A year earlier it was positive $24.5 billion, by our arithmetic from the same cash flow statement.
Microsoft’s operating cash flow less additions to property and equipment was $18.6 billion in the quarter, by our arithmetic, against $25.7 billion a year earlier. Its operating cash flow rose to $58.0 billion from $45.1 billion, while additions roughly doubled from $19.4 billion.
The difference is not the size of the spending alone. Microsoft’s operating cash flow rose about 29% from a year earlier, by our arithmetic; Alphabet’s fell about 13%, from $48.4 billion to $42.3 billion. Alphabet’s release also lists an $8.7 billion loss on equity securities within other income and expense.
How Each Company Paid
Alphabet’s release says it issued senior unsecured notes for net proceeds of $28.7 billion in the quarter. It also sold Class A and Class C shares under its at-the-market program for net proceeds of $4.3 billion and $8.1 billion, with $27.6 billion still available under the program. Its cash flow statement lists no share repurchases in the quarter.
Microsoft’s cash flow statement shows $4.85 billion of debt repaid, $4.4 billion of stock repurchased and $6.8 billion of dividends paid in the quarter. Its release says Microsoft returned $10.2 billion to shareholders in dividends and share repurchases.
As we read the two cash flow statements, the gap comes from the cash side as much as the spending side: Microsoft’s operating cash flow rose to $58.0 billion from $45.1 billion, while Alphabet’s fell to $42.3 billion from $48.4 billion.
By our arithmetic, Alphabet’s ratio has risen in each of the last four quarters, from 49% to 121%; Microsoft’s peaked at 84% in October to December 2025 and has been between 65% and 68% since.
Alphabet’s release lists $28.7 billion of senior notes and $12.4 billion, by our sum, of at-the-market share sales in the quarter; Microsoft’s cash flow statement shows $4.85 billion of debt repaid.
Sundar Pichai, CEO of Google and Alphabet, Q3 2026 release, 28 October 2026
“We’re also seeing strong demand for our TPU systems across a wide range of customers”
Three Implications
FOR ALPHABET Free cash flow, as Alphabet defines it, was negative $9.1 billion in the third quarter and negative $5.9 billion in the second, according to its release.
FOR MICROSOFT Operating cash flow less additions to property and equipment was $18.6 billion in the quarter, by our arithmetic, against $25.7 billion a year earlier.
FOR THE RATIO Over the trailing twelve months, by our arithmetic, Alphabet’s ratio was 89% and Microsoft’s 69%.
The framework argues: “This is not a continuation of the cloud capex cycle.” It describes the subject of its analysis as the financing: how the money flows, where it cracks, what it buys and who can absorb it.
The two releases of 28 October put numbers on that question: Alphabet’s capital spending ran above its operating cash flow for a second quarter, while Microsoft’s stayed at 68% of it. The framework does not discuss these figures.
What Is Not Established
The ratio uses only the property-and-equipment line of each cash flow statement. Spending that does not pass through that line, such as leased capacity, is not counted.
Microsoft’s fiscal year ends in June, so its quarters here are calendar quarters, not its fiscal labels. Microsoft’s release says it will give forward-looking guidance on its earnings call, and Alphabet’s release does not update its 2026 capex range; any guidance from the calls is not included here.
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Both companies more than doubled their quarterly spending on property and equipment in a year. Microsoft’s operating cash flow grew enough to cover it with $18.6 billion left over; Alphabet’s did not, and the release shows $28.7 billion of new notes and $12.4 billion of share sales (our sum) in the same quarter.
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A note on sourcing. Alphabet figures come from its third-quarter 2026 results release of 28 October 2026 (SEC Form 8-K, Exhibit 99.1). Microsoft figures come from its fiscal 2027 first-quarter release of the same date (8-K, Exhibit 99.1) and, for earlier quarters, its fiscal 2026 Forms 10-Q and 10-K as tagged in SEC XBRL data. Ratios, differences and sums are our arithmetic; linked earlier pieces carry their own sources.
Gennaro Cuofano is a CRO and tech executive who has worked in AI since late 2015, starting with bringing NLP, natural-language generation, voice and chatbot products to the marketing industry. His background is in law and finance: he holds a Master's degree in Law and an International MBA with an emphasis on corporate finance (LUISS Business School and the University of San Diego, 2012), and worked as a financial analyst at a real-estate investment firm in San Diego and as an assistant controller. His work focuses on business model strategy, business engineering and, more broadly, structural analysis: how companies make money, read from their own filings. He created FourWeekMBA and leads research there and at The Business Engineer, his newsletter on AI and business strategy, with over 95,000 subscribers and more than 1,000 published analyses. His writing has also appeared on Entrepreneur (for example, How to Digitize a Family Business in Europe) and HackerNoon. Find him on LinkedIn and Substack. See how we source.
