Tech Sector Diverges: Microsoft Surges on Cloud Growth, Alphabet Miss Sparks AI Disruption Fears

Premarket trading on Thursday highlighted a sharp division among U.S. technology stocks, influenced by quarterly reports that reflected both opportunities and uncertainties tied to artificial intelligence (AI). Microsoft delivered fiscal first-quarter results that exceeded analyst expectations, bolstering confidence in cloud computing and AI demand. Meanwhile, Alphabet missed profit estimates, and slow advertising growth reignited concerns about how AI is changing the software industry.

Microsoft Advances as Cloud Revenue Surges

Microsoft shares rose about 2.8% in premarket trading after reporting quarterly results that topped Wall Street forecasts, according to Investing.com. For its fiscal first quarter, Microsoft reported earnings of $4.89 per share and revenue of $92.28 billion, beating analyst estimates of $4.72 per share and $90.61 billion in revenue. Azure, the company’s cloud computing platform, experienced 48% year-over-year revenue growth, driving Microsoft Cloud revenue up 31% in constant currency to $63.9 billion.

Microsoft also disclosed that Azure surpassed $100 billion in annual revenue during fiscal 2026, as Microsoft continues to spend heavily on AI infrastructure.

Alphabet’s Weak Earnings Drag Down Software Sector

Alphabet shares plunged more than 10% in premarket trading after the Google parent reported third-quarter results below consensus profit estimates. Earnings per share were $2.12, missing the analyst consensus of $3.02, while revenue climbed 25% to $127.6 billion, slightly beating estimates of $127.22 billion, as reported by Investing.com. Growth in Google’s search ad revenue slowed to its lowest rate in five quarters, stirring investor concerns about the payoff from Alphabet’s AI initiatives.

Company management indicated users are adopting Google’s AI Mode search feature, but monetization of those queries lags behind conventional search ads in generating revenue. This shift fueled investor skepticism about near-term returns from AI-driven product enhancements despite accelerating demand for AI services.

Software Stocks Slide Amid Broader AI Uncertainty

Concerns about AI-related disruption intensified after weak quarterly performances from several software companies. Fortinet shares dropped roughly 25%, while ServiceNow fell 18.1% after reporting its first adjusted earnings-per-share miss in six quarters, alongside fourth-quarter revenue guidance ($4.25 billion to $4.26 billion) that came in below analyst forecasts of $4.36 billion. These results contributed to a sector-wide decline, with Salesforce down 4.3%, Palo Alto Networks off 6%, CrowdStrike falling 5%, and Zscaler sliding 5.8% in premarket trading.

According to Investing.com, these figures add to investor anxiety over how AI adoption could reshape demand for traditional software and the profitability of established business models.

M&A Activity and Other Movers

Marvell Technology dropped 9.5% in premarket after Bloomberg reported the company was in advanced talks to acquire Lumentum Holdings, whose photonic components are used in AI-focused data centers. Lumentum shares gained 5.6% on the news. The potential acquisition sparked questions about Marvell’s plans for financing and near-term earnings impact, given Lumentum’s reported market capitalization of around $83 billion and Marvell’s approximate $221 billion valuation.

Caterpillar fell 9.7% despite higher third-quarter adjusted earnings of $7.20 per share, up from $4.95 a year earlier, reflecting resilience in backup power, turbine, and construction markets. Yet shares retreated, even as the result signaled continued strength in industrial demand.

Chipotle Mexican Grill, conversely, advanced 7% as the restaurant chain forecast 3% to 4% comparable sales growth in the current quarter, above the 2.1% seen in the most recent three-month period. Executives cited the positive impact of new menu items and marketing initiatives.

AI monetization after Microsoft and Alphabet

The starkly different reactions to Microsoft’s and Alphabet’s results have revived questions about the pace at which AI investments can be monetized. Upcoming technology earnings will show how cloud providers and software companies are adapting to AI.