AllianceBernstein Says AI Slowdown Calls Won't Derail Tech Fundraising

Microsoft's Azure cloud business passed $100 billion in annual revenue for fiscal 2026, with Azure and other cloud services growing 43% in the fiscal fourth quarter, unchanged in constant currency. Total quarterly revenue came in at $90.0 billion, up 18%, while fiscal 2026 revenue reached $331.8 billion, also up 18%, and Intelligent Cloud revenue hit $39.3 billion, up 32%. Operating income rose 18% in the quarter to $40.6 billion and 21% for the full year to $155.2 billion, while adjusted EPS was $4.74 for the quarter, up 23%, and $17.28 for the year, up 22%. Microsoft said one-time items added $0.27 per share versus its own guidance, including a $3.2 billion gain on its Anthropic investment, partly offset by severance costs and Xbox impairment charges, and that after adjusting for those items it still beat its expectations on revenue, operating income and EPS. At a forward P/E of 26.59 as of October 6, the stock trades above the sector's 23.81 but below its own five-year average of 30.52, with analysts expecting earnings per share to grow 19.77% in 2027.

Jefferies named Alibaba Group Holding its top pick in the China Internet sector, maintaining a Buy rating and raising its price target on the U.S.-listed shares to $192 from $190, with the Hong Kong-listed target moving to HK$186 from HK$184. The firm cited solid execution across multiple business segments and accelerating growth in artificial intelligence cloud services. Jefferies expects AI Cloud and Compute services revenue to grow over 50% year-over-year to RMB60.5 billion in the September quarter, with segment margin improving quarter-over-quarter to 12.3%, and forecasts cloud revenue to grow over 50% year-over-year in fiscal year 2028. Total revenue is estimated to grow 9.6% year-over-year, while cloud segment profit is expected to offset losses in AI Lab and Applications in the December quarter. On ecommerce, the gap between gross and net China marketplace revenue is narrowing and Quick Commerce losses are lower in September than in the June quarter.

Microsoft has merged its three reporting segments into two, Agents and Infra and Devices and Consumer, starting with fiscal 2027, a change that puts its AI investment case in sharper focus. Restated figures show the Agents and Infra segment, which groups Azure with Microsoft 365 cloud and industry solutions, generated $268.1 billion in revenues and $136.4 billion in operating income in fiscal 2026, an operating margin above 50% even at the peak of the buildout, and management expects first-quarter fiscal 2027 Agents and Infra revenues of $75.15-$75.75 billion. The spending is enormous: fiscal fourth-quarter capital expenditures were $41 billion, roughly two-thirds of it on short-lived assets mainly CPUs and GPUs, first-quarter capex is expected to exceed $50 billion, and a lease reclassification has lifted the calendar 2026 estimate to about $175 billion, while free cash flow fell to $19.6 billion from about $25.6 billion a year earlier and Microsoft Cloud gross margin fell year over year to 65%. The strongest offset is visible future demand, with commercial remaining performance obligation up 84% to $678 billion, about 30% of it expected to be recognized as revenue within 12 months, Azure revenues exceeding $100 billion for the first time in fiscal 2026, and first-quarter Azure growth projected at 44-45% in constant currency against about 17% for Microsoft 365 commercial cloud, supported by more than 30 million paid Copilot seats and new usage-based billing. For fiscal 2027, Microsoft expects double-digit growth in revenues and operating income, full-year operating margins slipping by less than a point and free cash flow staying positive, and because so much of the spending goes to short-lived hardware the company can slow purchases quickly if demand weakens, though rising depreciation and margin pressure remain real risks. Amazon raised its 2026 cash capex outlook to about $220 billion, with AWS revenues up 37% to $42.2 billion in the second quarter and a backlog of $496 billion, while Alphabet lifted its 2026 capex guidance to $195-$205 billion as Google Cloud revenues surged 82% to $24.8 billion and its cloud backlog reached $514 billion, with slightly more than half expected to convert into revenue within 24 months, though Alphabet's free cash flow turned negative in the second quarter.

Amazon is expanding the AI services it sells through Amazon Web Services, with September 2026 launches that added OpenAI's GPT-6 Astra and Moonshot AI's Kimi K3 to Amazon Bedrock and brought the Amazon Quick desktop app and Amazon Connect Talent to general availability. The business already has strong traction: in the second quarter of 2026, AWS' AI business passed a $25 billion annual revenue run rate, growing at triple-digit percentages year over year, and Amazon is investing $1 billion to create AWS Forward Deployed Engineering. That demand showed up in the results, with AWS segment sales rising 37% year over year to $42.2 billion, segment operating income increasing to $16.6 billion from $10.2 billion, and AWS operating margin widening to 39.4% from 32.9% a year earlier. For the third quarter of 2026, Amazon expects net sales of $197-$202 billion, indicating 9-12% year-over-year growth, and operating income of $22.5-$26.5 billion compared with $17.4 billion a year earlier, though trailing 12-month free cash flow fell to an outflow of $7.6 billion as purchases of property and equipment rose $66.1 billion, largely for AI. Amazon faces stiff competition from Microsoft, whose Azure and other cloud services revenues rose 43% in the fiscal fourth quarter ended June 30, 2026, and Alphabet, whose Google Cloud revenues climbed 82% to $24.8 billion in the second quarter of 2026.