Google, Microsoft Reignite AI Rally as OpenAI Faces Pressure
Wednesday was a brutal day to be an OpenAI investor. While the ChatGPT maker was still reeling from reports of missed revenue and user targets, Google and Microsoft stepped to the podium and delivered earnings that shut down any doubts about the AI trade’s momentum.
Alphabet, Google’s parent company, reported $109.9 billion in Q1 2026 revenue, up 22% year-over-year and the company’s fastest growth rate since 2022, well ahead of Wall Street’s $107.1 billion forecast. The engine behind that beat was Google Cloud AI revenue growth, which surged 63% year-over-year to $20.03 billion, up from $12.26 billion in Q1 2025, landing nearly $1.6 billion above analyst estimates. CEO Sundar Pichai noted on the earnings call that enterprise AI solutions had become the primary growth driver for Google Cloud for the first time in Q1.
Microsoft matched the energy. The company posted $82.9 billion in fiscal Q3 2026 revenue, up 18% from a year ago, beating estimates of $81.39 billion. Its AI business crossed an annual revenue run rate of $37 billion, up 123% year-over-year. Azure and other cloud services grew 40%, while Microsoft Cloud overall hit $54.5 billion, up 29%. Copilot, the company’s enterprise AI assistant, now counts over 20 million paid users, up from 15 million the previous quarter. CEO Satya Nadella declared this the “agentic computing era,” a statement that lands differently when your numbers are growing triple digits.
On the Google side, Gemini is no longer just a product, it’s a commercial engine. Earlier this year, Apple signed a multi-year deal to build its next generation of Foundation Models on Gemini, one of the most significant AI endorsements of the year. Paid monthly active users of Gemini Enterprise grew 40% quarter-over-quarter. Google’s Cloud backlog now stands at a staggering $460 billion, nearly double the prior quarter, suggesting the Google Cloud AI revenue growth story is far from over.
All of this plays out against a rough stretch for OpenAI. The company reportedly missed its own internal targets for revenue and user growth, with CFO Sarah Friar raising concerns that the company may struggle to fund future compute contracts if revenue doesn’t accelerate. The market reaction was swift, Oracle fell around 4%, CoreWeave sank more than 5%, and SoftBank dropped roughly 10% during Tokyo trading, per CNBC. Nvidia and AMD also slid.
The contrast is stark. Google and Microsoft are converting the AI wave into hard cash at scale, while OpenAI remains heavily reliant on investor capital to bridge the gap between its ambitions and its revenue reality. Gemini 3 Pro, released in November 2025, is already driving commercial demand across the Cloud stack after outperforming its predecessor on every benchmark Google tested.
Total ad revenue for Alphabet came in at $77.25 billion, up 15.5% year-over-year, a clean beat across the board, with YouTube the only slight miss at $9.88 billion versus the $9.99 billion estimate. Looking ahead, Alphabet guided 2026 capital expenditures between $175 billion and $185 billion, more than double the $91.4 billion spent in 2025, a signal that the company expects its Cloud backlog to keep converting well into 2027.
The AI trade isn’t cooling off. For Google and Microsoft, it’s just getting started.
