Alphabet missed third-quarter revenue and earnings forecasts as spending to expand cloud capacity put pressure on cash flow, despite sharply higher sales. Microsoft exceeded expectations, but its results also showed the cash demands of building artificial intelligence infrastructure.

Google’s parent reported after Wall Street closed that revenue rose 25% to $127.5 billion, below analysts’ $128.2 billion forecast. Net profit fell 25.2% to $26.2 billion. Adjusted earnings per share were $2.12, against expectations of $3.02, while free cash flow dropped more steeply than anticipated to $9.07 billion.

The strongest counterpoint was Google Cloud: demand for computing and AI lifted revenue 102.6% to $30.71 billion, exceeding the $28.7 billion forecast. That growth illustrates the commercial opportunity behind the expansion, although it has not prevented pressure on cash generation.

Advertising revenue increased 10.6% to $82.01 billion. Search revenue was given as $6.78 billion, up 12%, helped partly by AI Mode; YouTube advertising rose 9.2% to $11.23 billion. Services revenue grew 10.6% to $96.3 billion, including an 11% rise in subscriptions, platforms and devices to $14.29 billion. Other Bets, which includes autonomous-driving business Waymo, increased revenue 8.1% to $372 million.

Alphabet said Gemini had reached one billion users and was its fastest-growing product. Chief executive Sundar Pichai described a strong quarter, with annualised revenue running at half a trillion dollars. He said AI investment was increasing search queries, including commercial searches, with annual query growth at its strongest in five years. He also cited demand for Google’s TPU systems and said its models processed almost 32 billion tokens a minute, four times last year’s level.

Google’s workforce increased 7.7% to 204,760, contrasting with substantial cuts at other technology companies, including Meta and Microsoft.

Microsoft’s fiscal first quarter, ending 30 September, brought revenue growth of 19% to $92.3 billion and adjusted earnings of $4.89 a share, beating forecasts of $90.69 billion and $4.73 respectively. Its shares rose 4% in after-hours trading.

Azure cloud revenue climbed 48% to $33.17 billion, above the $32.32 billion forecast. Capital expenditure rose about 30% to $45.2 billion as Microsoft built data centres for AI demand, but remained below the $50.67 billion expected. Free cash flow fell 27% to $18.63 billion.

Microsoft said during the quarter that it would cut 4,800 jobs, then announced on Monday voluntary retirement offers for up to 60,000 employees. Its shares had risen 10% since the year began, against 13% for the S&P 500. Both companies’ results show expanding cloud demand alongside weaker free cash flow; the figures do not settle how quickly infrastructure investment will pay back.