CNBC reported on 29 October 2026 that Microsoft and Alphabet both reported AI infrastructure spending below analyst estimates and did not raise their capital expenditure outlooks. Microsoft reduced its forecast for the year to USD 170 billion from USD 175 billion, while Alphabet kept its guidance at USD 195 billion to USD 205 billion. For Azure customers, the relevant signal is capacity timing rather than weaker demand.
Capacity slips into 2027
Microsoft finance chief Amy Hood said on the company's earnings call that delays at third-party providers of graphics processing units would push out some available capacity until the first half of 2027. She also said, "We still have demand that exceeds supply." Microsoft reported USD 45.2 billion of capital expenditures and finance leases for the quarter ended 30 September, up about 30% year on year but below the USD 50.67 billion expected by analysts surveyed by StreetAccount.
The company said roughly three-quarters of capital expenditure is now tied to short-lived assets such as Intel chips and Nvidia graphics processing units. That share was about two-thirds in the previous three quarters and half in the year-ago quarter. Hood said Microsoft is aiming for more than USD 50 billion of capital expenditures and finance leases in its fiscal second quarter.
Azure demand remains ahead of supply
Microsoft's quarterly revenue rose 19% year on year to USD 92.28 billion. Azure revenue grew 48% to USD 33.17 billion, ahead of the USD 32.32 billion expected by analysts surveyed by StreetAccount, and Azure is now Microsoft's biggest single business. Hood gave fiscal second-quarter Azure guidance of 49% to 50% growth at constant currency.
Free cash flow fell 27% year on year to USD 18.63 billion as capital spending rose. Microsoft said it expects to remain free-cash-flow positive through the 2027 fiscal year, and Hood said the company could use additional funding sources when terms are attractive. She cited financing leases and access to debt markets, but did not say Microsoft had an urgent need to raise funds.
Alphabet and neoclouds face the same constraint
Alphabet held its capital expenditure guidance at USD 195 billion to USD 205 billion. Finance chief Anat Ashkenazi told analysts that outside computing power came online only at the very end of the third quarter. Alphabet also reported negative free cash flow of more than USD 9 billion, and its shares fell about 10% in extended trading after it missed earnings and revenue expectations.
The pressure extends to neocloud providers, including CoreWeave, Nebius and IREN, whose shares dropped after the Microsoft and Alphabet disclosures. Oracle also fell; it is one of the larger spenders on AI infrastructure. The risk for the specialist compute providers is financing: they need billions of US dollars in outside capital for data centre build-outs, but lack investment-grade credit ratings. Gartner analysts predicted that by 2030, 80% of neocloud companies will either be absorbed or cease operations.
Planning impact
For IT teams, the spending figures matter because they show how dependent AI services remain on data centre delivery, component availability and contracted third-party compute. Microsoft's own numbers still point to growth in Azure and Microsoft 365 Copilot usage, including a 50% quarter-on-quarter increase in the number of people using Microsoft 365 Copilot, but the company did not disclose paid Copilot seats.
Companies with Azure commitments may need to separate software availability from compute availability. A licence or platform decision does not by itself guarantee regional capacity, price stability or delivery timing for workloads that depend on graphics processing units.
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This article was written by the ECS editorial team with the assistance of Amal Agent, run.events' AI assistant, which supported the research, drafting and proofreading.