AI brief, Thursday 29 October 2026
Alphabet spent $51bn on property and equipment in one quarter, stopped buying back its own stock, and now reports negative free cash flow; Microsoft's capital spending doubled while its free cash flow fell 27%; and Meta, also with negative free cash flow, sold $37bn of equity and preferred stock in a single day. The AI build-out has outgrown the cash the three of them generate.
Alphabet's free cash flow is negative, and the buybacks have stopped
Alphabet reported its third quarter on 28 October and the headline numbers are the best it has ever printed: revenues up 25% to $127.577bn, Google Cloud up 103% to $30.709bn, operating income up 30% to $40.576bn at a 31.8% margin. Sundar Pichai said the company is "now on a half-trillion dollar revenue run rate".
The cash flow statement in the same exhibit tells a different story.
- Purchases of property and equipment: $51.355bn in the quarter, against $23.953bn a year earlier. Year to date, $131.953bn against $63.596bn.
- Net cash from operating activities was $42.290bn. Alphabet's own reconciliation therefore puts free cash flow at negative $9.065bn for the quarter — and negative $5.855bn for the quarter before it. Two consecutive negative quarters have cut trailing-twelve-month free cash flow to $19.747bn.
- Repurchases of stock: zero. A year ago Alphabet bought back $11.504bn of its own stock in the quarter and $39.810bn over nine months. Year to date in 2026 the figure is nil.
- Instead it issued. In the quarter: $12.371bn of common stock (12 million Class A shares for $4.3bn and 24 million Class C for $8.1bn, under an at-the-market programme with $27.6bn still available) and $28.996bn of debt. Over nine months: $42.870bn of common stock, $19.063bn of mandatory convertible preferred stock, and $85.222bn of debt.
- Net cash provided by financing activities year to date: positive $115.757bn, against negative $44.416bn in the same period last year.
Earnings per share fell to $2.12 from $2.87, which is not an operating result — other income (expense), net swung from a gain of $12.759bn to a loss of $8.221bn, and the cash flow statement attributes $9.048bn of loss in the quarter to marks on debt and equity securities.
Why it matters. For four days this site has traced the gap between announced data-centre capacity and power actually delivered. This is the first filing that shows what closing that gap costs the buyer. Alphabet has gone from buying back $39.810bn of its own stock in nine months to buying back none, while raising $147bn of external capital over the same nine months across three instruments, one of which — mandatory convertible preferred stock — is the kind of thing capital-hungry industrials issue, not the most profitable advertising business ever built. The swing in the financing line, $160bn year on year, is the real measure of the build-out: a company that had more cash than it knew what to do with is now a net borrower on a scale that moves credit markets. Note also what it has not done: Alphabet did not take the cheap option of slowing capex to protect the buyback. It did the opposite, and told the market so by issuing equity at the same time.
Source: Alphabet Inc., third-quarter 2026 results, Exhibit 99.1 to Form 8-K, 28 October 2026 (SEC EDGAR).
Microsoft's capital spending doubled; its free cash flow fell 27%
Microsoft reported its first fiscal quarter the same evening. Revenue $92.3bn, up 19%; operating income $45.9bn, up 21%; Microsoft Cloud $63.9bn, up 30%; Azure up 48%. Commercial remaining performance obligation — contracted revenue not yet recognised — rose 73% to $677bn.
And the two lines that matter for this site:
- Additions to property and equipment: $39.367bn, against $19.394bn in the same quarter last year. That is a 103% increase.
- Net cash from operations was $58.000bn, against $45.057bn.
Microsoft does not publish a free cash flow figure in the release, but on those two lines it is $18.633bn this quarter against $25.663bn a year ago — down 27% while revenue grew 19%. Microsoft still returned $10.2bn to shareholders in the quarter.
Two further details are worth recording. First, Microsoft has reorganised its segments and now reports "Agents and Infra" — revenue $76.8bn, up 25% — against "Devices and Consumer" at $15.5bn, down 3%, inside which Windows OEM and Devices fell 22%. Second, Microsoft now treats its OpenAI holding as a standing non-GAAP adjustment: GAAP net income rose 32%, non-GAAP net income rose 18%, and the difference is a $3,293m year-on-year swing in the OpenAI line, which added $207m to this quarter's reported earnings after subtracting $3,086m a year ago.
Why it matters. Microsoft is the control case for the item above: same spending shock, intact free cash flow, no equity issuance. Both companies roughly doubled quarterly capital spending; Alphabet's operating cash flow could not cover it and Microsoft's could, with a quarter less to spare. That is the dividing line to watch across this reporting season — not who is spending, since everyone is, but whose operating business still funds it. The segment rename is not cosmetic either: a company that reported "Productivity and Business Processes" now has a reporting line called Agents and Infra, and the 22% fall in Windows OEM beneath it says which way the revenue is moving inside the same house. On the OpenAI adjustment, read the smaller number: 14 of Microsoft's 32 points of earnings growth are a mark on an investment reversing direction, not operations.
Source: Microsoft Corp., first-quarter fiscal 2027 results, Exhibit 99.1 to Form 8-K, 28 October 2026 (SEC EDGAR).
Every dollar in these two filings buys an asset the spender then owns and operates. The other way to get compute is to rent the building and bring the machines: Ark7's Project Soperton is built on that division of labour, where Ark7 provides the grid power and builds the data center and tenants bring their own servers and chips. Ark7 is an advertiser on this site and we are paid if you open that link; see About.
Meta raised $37bn of equity and preferred stock in one day
Meta Platforms priced two concurrent offerings on 28 October, both filed as prospectus supplements the same day.
- 40,000,000 shares of Class A common stock sold through forward sale agreements with Morgan Stanley and Goldman Sachs at an initial forward price of $622.91875 a share, for expected net proceeds before expenses of approximately $24.9bn — up to $28.7bn if the underwriters take their option on a further 6,000,000 shares. Meta receives nothing up front; the forward sellers borrow and sell the shares now and Meta settles, it expects physically, on or before 19 November 2027.
- 250,000,000 Series A Depositary Shares, each representing a 1/20th interest in a share of 6.50% Series A Mandatory Convertible Preferred Stock with a $1,000 liquidation preference, for net proceeds of approximately $12.5bn — $14.3bn with the over-allotment. Dividends may be paid in cash or in Class A stock.
That is roughly $37.4bn, and up to $43.0bn, raised in a single session. For scale, the filing states Meta's total consolidated indebtedness at 30 September 2026 was $83.7bn. Meta also disclosed that it filed an amended certificate of incorporation on 21 October creating a new Class C common stock, effective 19 January 2027, which the forward sale agreements may be settled in.
Meta reported the quarter behind this a week earlier, on 21 October, and that filing is why the raise reads the way it does. Revenue was $64.601bn, up 26%; purchases of property and equipment were $33.942bn against $18.829bn a year earlier; net cash from operating activities was $32.786bn. On Meta's own definition — operating cash flow less capital expenditure less finance-lease principal — free cash flow was negative $2.120bn, against positive $10.625bn in the same quarter last year. Meta guided 2026 capital expenditure including finance leases to $135–145bn, narrowing the bottom of its previous $130–145bn range upward.
Why it matters. Four things. First, the sequence: a company that showed negative free cash flow on 21 October raised $37bn of equity-linked capital on 28 October. That is the clearest cause and effect in this brief, and it is the same pattern as the Alphabet item — capital spending has passed what the operating business generates, and the difference is now being raised from outside. Second, the instrument: Meta has issued mandatory convertible preferred stock paying 6.50%, and the filing above shows Alphabet raised $19.063bn from the same instrument earlier this year. Both are established bond issuers — Meta's own filing puts its consolidated indebtedness at $83.7bn — and both have chosen a security that converts into shares rather than straight debt, which is what a borrower reaches for when it wants the capital without the leverage showing on the balance sheet. Third, the structure: a forward sale means the shares are sold to the market today and paid for by Meta up to a year from now, so the dilution lands later than the cash commitment it supports. Fourth, and the part worth being careful about: neither filing says what the money is for. Both state the proceeds are for "general corporate purposes", and the preferred offering's risk factors say plainly that Meta has "broad discretion in the use of the net proceeds". Every report of this deal will attach it to AI capital spending, and the timing makes that the obvious reading — but it is an inference, not a disclosure, and the distinction is the whole reason to read the filing instead of the coverage.
Sources: Meta Platforms, Inc., prospectus supplement for the 6.50% Series A Mandatory Convertible Preferred Stock, filed 28 October 2026, which also describes the concurrent forward sale; and Meta's third-quarter 2026 results, Exhibit 99.1 to Form 8-K, filed 21 October 2026 (both SEC EDGAR).
Three items, one theme. Amazon reports after the US close today, too late for this brief; its numbers will lead tomorrow's. Every capital-spending figure above is the company's own cash flow line, quoted from the filing — we have not added them up across three different fiscal calendars, and Microsoft's quarter is its fiscal first, not a calendar third. How this site works.