Three primary documents from October 28 set the tone for US markets: the Federal Reserve’s policy statement, Microsoft’s first-quarter FY2027 results and Alphabet’s third-quarter results. We read the documents rather than the headlines, because the two do not always say the same thing.
The Fed holds, with two votes for a hike
At 2:00 p.m. ET the Federal Open Market Committee kept the target range for the federal funds rate at 3-3/4 to 4 percent, by a 10–2 vote. Lisa D. Cook and Beth M. Hammack dissented, each preferring a quarter-point increase. The statement says economic activity is expanding at a strong pace, job gains have kept pace with the workforce and the unemployment rate has changed little, and that inflation remains elevated. Both dissents were for a higher rate, not a lower one.
Microsoft and Alphabet, side by side
| Quarter ended Sept 30, 2026 | Microsoft (FY2027 Q1) | Alphabet (Q3) |
|---|---|---|
| Revenue | $92.3B, up 19% | $127.6B, up 25% |
| Cloud | Azure up 48%; Microsoft Cloud $63.9B, up 30% | Google Cloud $30.7B, up 103% |
| Operating income | $45.9B, up 21% | $40.6B, up 30% |
| Net income | $36.6B, up 32% (GAAP) | $26.2B, against $35.0B a year earlier |
| Capital spending | $39.4B, against $19.4B | $51.4B, against $24.0B |
Sources: company releases. Microsoft’s capital spending is “additions to property and equipment” from its cash flow statement; Alphabet’s is “purchases of property and equipment”. Net income is as reported (GAAP).
Microsoft’s revenue was $92.3B, with diluted EPS of $4.92 (up 32%). Excluding OpenAI investment impacts, net income was $36.4B, up 18%, and EPS $4.89. The release gives no numeric guidance; it says guidance will come on the earnings call.
Alphabet’s headline is a profit decline, and it is accurate: net income was $26.2B against $35.0B, and diluted EPS $2.12 against $2.87. The release attributes the swing to a non-operating item. A net loss on equity securities of $8.7B, against a $10.7B gain a year earlier, reduced net income by $6.7B and EPS by $0.55 after a $1.9B tax benefit. Operating income rose 30%, to a 32% margin. Alphabet made no share repurchases in the quarter, against $11.5B a year earlier, and issued stock under an at-the-market program for net proceeds of $4.3B (Class A) and $8.1B (Class C).
The common thread: capital spending
Capital spending roughly doubled at both companies: $39.4B against $19.4B at Microsoft, and $51.4B against $24.0B at Alphabet. Set against quarterly revenue, that is about 43% at Microsoft and 40% at Alphabet (our arithmetic). The returns so far are in the cloud lines: Azure grew 48% and Google Cloud 103%. Whether growth of that kind continues at this level of spending is the question these two reports leave open; neither document answers it.
What this means for our coverage
Nothing here changes a rating or a fair value in our published notes. Our DCF-based notes set discount rates by judgment (8.5% in the DCI and MZTI notes, 10.0% in the GABC excess-return model), and none moves mechanically with the federal funds rate. We update a note when its own company reports, not when the market moves.
Sources: Federal Reserve, FOMC statement, October 28, 2026 · Microsoft, FY27 Q1 earnings release · Alphabet, Q3 2026 earnings release. Figures are as published by each source; percentages marked “our arithmetic” are ours.
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