The clearest contrast in the October 28 results came from inside one company. Azure revenue grew 48% to $33.2 billion in the three months to September, Microsoft (Nasdaq: MSFT) said in its results, while Microsoft 365 cloud, the subscription business behind its workplace apps, grew 17% to $27.8 billion. Inside one company, the infrastructure grew almost three times as fast as the apps.
The evening's other results ran the same way. Google Cloud revenue at Alphabet (Nasdaq: GOOGL) doubled, helped by sales of TPU chip systems. ServiceNow (NYSE: NOW) grew subscription revenue 21% and forecast slower growth in its contracted revenue, and Fortinet (Nasdaq: FTNT) grew service revenue 13%. By a SaasBuzz analysis of the filings, Azure and Google Cloud together took in $26.3 billion more revenue than a year earlier, more than six times ServiceNow's revenue for the whole quarter. Both cloud companies credit AI for part of that growth and core cloud services for the rest, without saying how much is which. Read together, the results suggest that the money companies spend on AI is reaching infrastructure first, while subscription software grows at roughly the pace it did before.
| Business, quarter to September 2026 | Revenue | Growth from a year earlier |
|---|---|---|
| Azure (Microsoft) | $33,165M | 48% |
| Google Cloud (Alphabet) | $30,709M | 103% |
| Microsoft 365 cloud | $27,778M | 17% |
| ServiceNow subscriptions | $3,988M | 21% |
| Fortinet service | $1,313M | 13% |
Source: SaasBuzz analysis of company results; growth recalculated from reported dollars. Microsoft 365 cloud covers commercial and consumer. Google Cloud includes Google Workspace subscriptions and sales of TPU systems.
Six times ServiceNow's quarter
Azure's revenue rose by $10.8 billion from a year earlier and Google Cloud's by $15.6 billion, $26.3 billion between them before rounding. ServiceNow, whose shares slid 23% on October 29, booked $4.1 billion of revenue in the same quarter.
Over a year the gap is wider. In the four quarters to September, Azure took in $112.7 billion and Google Cloud $93.2 billion, $73.9 billion more between them than in the four quarters before. ServiceNow and Fortinet together took in $23.3 billion over the same twelve months, so the two clouds added more than three times the two software companies' entire revenue.
The growth rates have moved apart too. A year ago Azure grew 40% and Google Cloud 34%, against 21.5% for ServiceNow's subscriptions. In the latest quarter Azure grew 48% and Google Cloud 103%, while ServiceNow's subscriptions grew 21%.
The spending behind it
Alphabet spent $51.4 billion on property and equipment in the quarter, and Microsoft reported $45.2 billion of capital expenditure, a figure that includes $7.4 billion of finance leases. That is $96.6 billion between them, up 64% from a year earlier. Counting only cash spent, it is $90.7 billion, more than double the year before. Either way, one quarter of the two companies' spending is about four times what ServiceNow and Fortinet took in over the past year.
| Quarter | Alphabet | Microsoft | Together |
|---|---|---|---|
| Q1 2025 | $17.2B | $21.4B | $38.6B |
| Q2 2025 | $22.4B | $24.2B | $46.6B |
| Q3 2025 | $24.0B | $34.9B | $58.9B |
| Q4 2025 | $27.9B | $37.5B | $65.4B |
| Q1 2026 | $35.7B | $31.9B | $67.6B |
| Q2 2026 | $44.9B | $41.0B | $85.9B |
| Q3 2026 | $51.4B | $45.2B | $96.6B |
Source: SaasBuzz analysis of company results and Microsoft's call transcripts. Alphabet's figure is cash spent on property and equipment; Microsoft's is its reported capital expenditure, including finance leases. Calendar quarters.
Microsoft says the spending follows demand it cannot yet meet. Amy Hood, its chief financial officer, said on the call that "we still have demand that exceeds supply," according to Microsoft's transcript. Satya Nadella, its chairman and chief executive, said Microsoft added 24 data centers in the quarter, and the company guided to Azure growth of 49% to 50% in constant currency for the quarter to December. At Alphabet, Thomas Kurian, CEO of Google Cloud, said sales of TPU systems are expected to ramp up significantly in 2027, Reuters reported.
Why the apps grow more slowly
The companies' own statements point to two reasons. The first is that much of the new spending goes on compute and model usage, which is what the clouds sell. Microsoft's new Azure measure, introduced on September 2, is in its words "more purely our consumption-based platform and infrastructure business," and that is the line growing 48%.
The second is that AI that does work can reduce the number of people a customer pays for, and ServiceNow describes its own case that way. Gina Mastantuono, its president and CFO, said on the call that the company's internal AI "efficiency gains means that we're able to not hire as many people," according to a transcript published by The Motley Fool. ServiceNow's headcount fell by 1,602 in the quarter, though it is still up 855 from a year earlier, and it booked $87 million of severance. A customer that hires fewer people needs fewer seats of any software priced by the seat.
Our business model is expanding from per-seat subscriptions to include consumption, expanding our TAM and ARPU.Satya Nadella, chairman and CEO of Microsoft, on the October 28 call
The vendors are changing how they charge. Microsoft said the number of Copilot customers consuming credits through usage-based billing grew more than 75% in the quarter. Salesforce (NYSE: CRM) reports Agentic Work Units, "a measure of discrete tasks executed by AI agents," in its quarterly results. ServiceNow said customers' agentic AI consumption in production so far this year was more than 13 times the level of a year earlier.
The case against
The strongest objection is that the apps are building AI businesses of their own, and quickly. ServiceNow raised its target for AI annual contract value by the end of 2026 to $1.7 billion, from $1 billion at the start of the year, and its fourth-quarter guidance calls for subscription growth of 22.5% to 23%, about 1.75 points of it from its Armis acquisition. Salesforce said in August that Agentforce annual recurring revenue exceeded $1.5 billion, up more than 240%, on a measure it widened that quarter to include Slackbot and Headless 360. Hood said Microsoft expects Microsoft 365 commercial cloud growth to speed up through its fiscal year, starting at about 19% in constant currency in the quarter to December.
The second objection is that the cloud numbers are flattered. Part of Google Cloud's doubling is TPU hardware, sold once rather than rented, and Google Cloud also includes Workspace subscriptions. Azure's 48% is measured on the narrower definition Microsoft adopted in September. And the spending has not paid off in cash: Alphabet's free cash flow was negative $9.1 billion and Microsoft's fell 27% to $18.6 billion. Alphabet's shares slid 13% on the morning of October 29, while Microsoft edged 0.5% lower, which Reuters tied to reports of a planned bond sale, Reuters reported.
Both objections are fair, and neither changes where the revenue is growing. The apps' AI businesses are growing fast from a small base: ServiceNow's $1.7 billion target is for annual contract value, while Azure's quarterly revenue alone rose by $10.8 billion from a year earlier, more than twice ServiceNow's revenue for the quarter. The finding is about where revenue is growing, not which shares rise: on October 29 investors sold both the slowing apps and Alphabet.
What it means
For software companies, the measure that matters is shifting from seats to usage: Microsoft, Salesforce and ServiceNow each now report a consumption number alongside subscriptions. For buyers, the vendors' own statements point to more of the software bill being metered. For investors, the S&P 500 Software & Services Index rose only 5% this year, less than half the gain of the S&P 500, Reuters reported on October 29.
What would change the conclusion
Three things would: application vendors' AI revenue growing to several billion dollars a quarter, cloud growth slowing as capacity catches up with demand or as TPU sales pass, and the subscription lines speeding up again, as Microsoft expects for Microsoft 365. Amazon holds its third-quarter results call at 5:00 p.m. ET on October 29. Alphabet does not disclose how much of Google Cloud's growth comes from hardware; its 10-Q says most of the revenue from its TPU agreements comes in 2027.
Method
The comparison uses Azure and Google Cloud, the two cloud businesses that report revenue in dollars and reported on October 28; Microsoft 365 cloud, Microsoft's own subscription app line; and ServiceNow and Fortinet, the two software companies that reported the same evening and that Reuters named in its report on the sector's fall. The rule set before writing, software companies worth more than $50 billion that reported that evening, could not be applied because market values were not sourced, so the companies Reuters named were used instead. All figures come from the companies' releases, filings and Microsoft's transcripts, and growth rates were recalculated from reported dollars. Azure figures are on the narrower basis Microsoft introduced on September 2, 2026, which restated the earlier quarters. Google Cloud includes Google Workspace subscriptions and, since the second quarter of 2026, sales of TPU systems. Twelve-month figures cover the four quarters to September 2026 for every company. Amazon Web Services is left out because Amazon reports after this analysis was written.
