Microsoft and Alphabet report earnings – the AI bill comes under scrutiny

Two heavyweights, one shared concern

Microsoft (MSFT) and Alphabet (GOOGL/GOOG) both report quarterly earnings after today's market close. Both companies are expected to show solid revenue growth, but what's really preoccupying the market is whether the massive investments in artificial intelligence are starting to pay off, writes ForexLive (investinglive.com).

For Microsoft, analysts expect earnings per share of $4.72, up 14.3 percent from $4.13 in the same period last year. Revenue is expected to land at $90.62 billion, growth of 16.7 percent. Azure growth, capital expenditures, and margin outlook are likely to be the most discussed topics on the earnings call.

Alphabet is expected to deliver earnings per share of $3.03, up 5.6 percent from $2.87. Revenue is estimated at $127.91 billion, growth of a full 25 percent from the previous year. Here, investors will closely watch growth in Google Cloud, developments in the advertising business, and how increasing AI investments are affecting free cash flow.

The math that worries analysts

Skepticism around AI investments has grown throughout 2024 and 2025, and several heavyweight players have put numbers on the gap between investments and revenue. Sequoia Capital partner David Cahn has, in his analysis "AI's $600B Question," calculated that the industry collectively needs to generate around $600 billion in annual revenue just to cover the costs of today's infrastructure buildout – an amount that, according to Cahn, is far above what is actually being generated today.

Goldman Sachs' head of global equity research, Jim Covello, has posed the pertinent question: "What is the $1 trillion problem that AI is supposed to solve?" Goldman has pointed out in its own reports that the tech market is too comfortable with the assumption that AI costs will fall sharply over time, as previous technology waves have done.

For Microsoft, CFO Amy Hood has previously warned that margins in the commercial cloud business will be squeezed sequentially due to high costs of building out AI infrastructure before revenue from customers follows. Alphabet CEO Sundar Pichai, for his part, has defended the pace of investment by saying that "the risk of underinvesting is dramatically greater than the risk of overinvesting."

Microsoft: a battle between buyers and sellers

Technically, the Microsoft stock is trading between two key moving averages ahead of the earnings. The 100-hour moving average at $532.58 has attracted sellers, while the 200-hour average at $521.93 has provided support. With the price around $527, these levels define the closest battle between buyers and sellers.

A break above $532.58 – with the price holding there – would strengthen the buyer side, with the next targets at $546 and $550, and ultimately the historic high of $555.45 from July 2025. A break below $521.93, on the other hand, would give sellers more control, with the support area of $513.50–$517.60 as the next stopping point, followed by the September lows between $486 and $492.23.

Alphabet: sellers have the upper hand

The Alphabet stock has had a more bearish trajectory heading into earnings. After rallying to $359.51 earlier in the month, and reclaiming the 100-day moving average at $347.12, the price turned down again. The decline has pushed the stock below both the hourly averages and the 200-day moving average at $341.20.

With the price around $325.22, buyers face several hurdles: the 100-hour average at $338.72, the 200-day average at $341.20, and the 100-day average at $347.18. All moving averages are pointing downward, reinforcing the bearish picture. On the downside, Monday's low of $316.60 is the first stopping point, with the support area of $311.42–$314.90 just below. A break there could open the way for a fall toward the February/March lows near $294.

"There's a gap between what the companies say about returns from AI investments and what investors are actually experiencing – falling cash flow."

ServiceNow follows suit

In addition to Microsoft and Alphabet, ServiceNow (NOW) reports earnings after market close. The company is expected to report adjusted earnings of $1.02 per share, up 6.3 percent from $0.96 last year, with revenue estimated at $4.09 billion – growth of around 20 percent. Subscription growth, demand for AI tools, and management's guidance are likely to shape the market's reaction.

What this means for the market

Tonight's results will be an important temperature check for the entire AI narrative that has driven tech stocks over the past two years. With the regime neutral and the Fear & Greed Index at 51 out of 100, meaning balanced, the market is neither euphoric nor panic-stricken ahead of the reporting. But given the growing skepticism from analysts regarding returns on AI capital, even solid revenue figures could be met with critical questions if the margin guidance disappoints. It's worth noting that the capital return estimates from players like Sequoia and Goldman Sachs are analyses and opinions, not definitive answers – but they reflect a broad concern in the investment community that could shape the reaction to today's figures.