The Federal Reserve held rates at 3.75%-4%, with two members dissenting in favor of a quarter-point hike. Chair Kevin Warsh told reporters he does not believe in forward guidance absent a crisis, leaving markets uncertain about December's path. The decision came as two of the world's largest technology companies reported sharply divergent results that dominated trading.
Microsoft announced revenue of $92.3 billion, increased 19% year-over-year, with Azure cloud growing 48% to reach $33.17 billion. Cloud spending came in lower than anticipated at $39 billion, and profit beat expectations at $37 billion. Enterprises are moving from model experiments to long-term contracts, with Microsoft prioritizing breadth over mega-deals with individual customers.
Alphabet missed Wall Street expectations on both earnings and revenue for the first time in nearly four years, with adjusted EPS of $2.67 versus $3.02 expected and revenue of $127.58 billion versus $128.22 billion. Free cash flow turned negative at $9.1 billion with capex hitting $51.4 billion, more than double the $24 billion a year earlier. Google Cloud's growth was stronger than Microsoft's at 103%, but the cost of acquiring that growth is unsustainable at current burn rates. The revenue miss was caused by Google's core advertising business that reported $82.01 billion in revenue, about $1.41 billion short of expectations, indicating the company's cash engine is slowing even as it accelerates spending.
Investors are looking for a substantial return on investment to warrant the big spending plans from hyperscalers. The divergence signals that markets now value capital discipline over pure revenue growth in the AI era. Public markets are now separating self-funding AI from cash-burning AI, a split that could reshape competitive dynamics across cloud, semiconductors, and data center infrastructure for quarters to come.
The Federal Reserve voted to keep benchmark interest rates on hold, opting to take a patient approach in its fight against inflation despite mounting evidence that price pressures are proving more nettlesome than policymakers had hoped. In the post-meeting statement, the Fed said that inflation "remains elevated" but signaled that it was waiting for the "accumulation of more information" before further action. Markets currently price in another 25 basis-point hike in December.
The Bureau of Labor Statistics reported 182,000 non-farm payrolls added in October, above expectations of 160,000. Average hourly earnings rose 4.1% year-on-year, still above the level consistent with 2% inflation, keeping the Fed cautious about cutting. The US economy has added an average of roughly 175,000 jobs per month in 2026, against a breakeven pace of about 100,000, which keeps the labor market tight and wage growth elevated.
Microsoft beat Wall Street's targets with sales up 19% to $92.3 billion, with diluted EPS of $4.92 and adjusted EPS of $4.89, above the roughly $4.72 the Street expected. Microsoft remains FCF positive with $18.63 billion in free cash flow, though down 27% year over year after $39.37 billion in cash capital spending. By contrast, Alphabet shares fell about 9% as the Google parent reported third-quarter results that missed on earnings and cash flow, with adjusted EPS of $2.67 versus $3.02 expected and free cash flow at negative $9.07 billion.
Alphabet's cloud growth was even stronger than Microsoft's at 103% growth for the unit, earning $11.1 billion in operating income on $30.7 billion in sales. Yet Alphabet reported capex of $51.4 billion in the third quarter compared to $24 billion a year ago, and confirmed its full-year capital spending forecast with capex expected to reach $200 billion in 2026 and then rise to $300 billion in 2027. CFO Anat Ashkenazi said capital expenditures will increase significantly in 2027 and expects near-term margin pressure from the use of third-party cloud capacity.
Frasers Group has raised its stake in Hugo Boss to 50.08% by purchasing 198,666 shares at EUR 38.41 each for a total of EUR 7.63 million, giving the UK retail group majority control of the German fashion company, with the group expecting to fully consolidate Hugo Boss in its financial results. The purchase follows Frasers' public takeover offer from June, which lifted its holding to 47.89% but failed to reach a majority.
GE Vernova acquired Triton-backed Trench Group for $9 billion, with Trench supplying bushings, instrument transformers and coils to more than 800 utilities and hyperscalers worldwide. The deal reflects consolidation in the power infrastructure sector as utilities and data center operators expand capacity.
Small business confidence rebounded in October, led by stronger expectations for profitability, revenue growth, and hiring, with the WSJ/Vistage Small Business CEO Confidence Index rising 6.1 points to 91.1 from 85.0 in September. Profit expectations saw the most significant gain, with the share of CEOs expecting higher profitability jumping 11 percentage points to 56%, while revenue growth expectations rose from 61% to 70%. Hiring plans also strengthened, with 58% expecting to add employees, up from 51% last month.
Higher confidence does not mean cost pressures are easing; when asked about changes in their primary business costs over the past 3 months, 44% of CEOs reported increases greater than the 3.4% CPI benchmark cited in the survey, while another 39% reported increases consistent with that benchmark. Concern about gasoline and energy costs was cited by 29% of owners, with anxiety about prices over the coming year rising from 73% to 81% since February, and unease about a recession rising from 59% to 73%.
The Federal Reserve's pause on rates and the October jobs beat signal that the economy remains resilient but inflation is sticky. Wage growth at 4.1% year-over-year outpaces the Fed's comfort zone, keeping another hike in play for December. For small and mid-sized businesses, the environment is mixed. Profit and revenue expectations are at their strongest since February, yet cost pressures remain real. Labor and energy costs continue to squeeze margins, and energy prices are now a top concern for owners. This argues for businesses to lock in supplier contracts where possible and reassess automation and AI investments for genuine payback, not just trend-chasing.
The earnings divide between Microsoft and Alphabet reflects a market correction: investors now value capital discipline over aggressive AI spending. Microsoft's ability to stay FCF-positive while growing cloud 48% signals that profitable scaling is feasible. Alphabet's negative free cash flow on rising capex is a warning. For operators, this means your board and lenders will increasingly scrutinize AI capex for ROI clarity, not just headcount or data center square footage. The M&A wave continues—M&A is broad-based and accelerating across regional banking and industrials, suggesting corporate balance sheets remain healthy enough to pursue growth through acquisition—but buyers are now asking harder questions about integration and payback.