Comparison of Core Valuations and Q3 Earnings Reports Among the Top Three Cloud Providers

Generative AI Warning: The following information is collected and calculated with the assistance of AI and does not constitute investment advice.

I. Valuation Preview

Calculated based on the closing price on July 31, 2026 in the US market:

The market capitalization of the three companies is approximately:

• Microsoft: $3.46 trillion;
• Alphabet: $4.36 trillion;
• Amazon: $2.95 trillion.

The surface TTM and forward PEs use S&P Global consensus estimates updated as of August 2, 2026.

The "Business Model Weighted Analysis Range" is constructed based on each company's profit structure, business growth, capital intensity, and peer valuations. It is used solely to compare the assumptions implied by current pricing and does not represent a target price.

From an accounting perspective, the impact of fair value changes in equity investments on the GAAP profits of the three companies varies. Microsoft's investment income accounts for a relatively limited proportion of its profits; however, Alphabet and Amazon included significant non-operating investment revaluation gains in their net profits over the past twelve months, resulting in a clear difference between their GAAP TTM PE and core operating earnings PE.

II. Core PE Excluding Investment Income

1. Microsoft: Approx. 27.4–27.8x

Microsoft's FY2026 net profit was $133.749 billion, including:

• $4.963 billion in after-tax net investment gains from OpenAI;
• An additional $3.2 billion in Anthropic investment gains in Q4 FY2026;
• Broader investment and derivative recognition gains in the cash flow statement exceeding the above two items.

Deducting these using narrow and broad definitions respectively, the core net profit is approximately $124.9–126.2 billion, corresponding to a core TTM PE of approx. 27.4–27.8x. GuruFocus's "PE excluding non-recurring items" is 27.55x, which is close to this result.

Microsoft's GAAP PE is 25.9x. After excluding related investment income, it is approximately 27.5x, an adjustment of about 1.6 PE multiples. Core operations still constitute the vast majority of net profit sources.

2. Alphabet: Approx. 34.0x

The contribution of equity investment income to after-tax net profit for Alphabet over the past four quarters is approximately:

• 2025Q3: $8.3 billion;
• 2025Q4: $1.8 billion;
• 2026Q1: $28.7 billion;
• 2026Q2: $77.1 billion.

Totaling approximately $115.9 billion. With a TTM net profit of $244.1 billion, the core net profit after deduction is approximately $128.2 billion, corresponding to a core TTM PE of approx. 34.0x.

About 47% of net profit over the past twelve months came from equity investment revaluations. There is a significant difference between the 17.9x GAAP PE and the core operating earnings basis.

The current 26.8x forward PE is lower than the 34x core TTM PE, reflecting market consensus expectations that include approximately 27% growth in core operating profits over the next twelve months.

3. Amazon: Approx. 40–41x

Key TTM data for Amazon is approximately:

• Operating Profit: $93.7 billion;
• Net Interest Income: $1.3 billion;
• Other Non-Operating Income: $80.4 billion;
• Effective Tax Rate: Approx. 22.6%.

Other non-operating income mainly comes from the fair value revaluation of Anthropic investments.

After excluding this portion of income and reconstructing core operating net profit using the effective tax rate, the core net profit is approximately $73.0 billion, corresponding to a core TTM PE of approx. 40.4x.

This calculation uses a relatively conservative definition, excluding all "other non-operating income," rather than just excluding identifiable Anthropic gains.

In Q2 2026 alone, other non-operating pre-tax income was approx. $53.4 billion, while net profit for the same period was $62.6 billion. Therefore, quarterly GAAP net profit is quite sensitive to investment revaluation changes.

The current 29.5x forward PE relative to the approx. 40.4x core TTM PE includes expectations of approx. 37% growth in core net profit over the next twelve months.

III. Valuation Characteristics Corresponding to Overall Business Models

Industry valuation references vary significantly:

• Market industry median: Software approx. 18.9x, Interactive Media approx. 14.2x, Cyclical Retail approx. 15.2x forward PE;
• Damodaran 2026 US Industry Data: Systems & Application Software approx. 34.1x, General Retail approx. 24.0x;
• Aggregated PE of profitable advertising companies approx. 25.5x.

The industry median includes many mature enterprises with low growth, while the industry mean may be influenced by loss-making enterprises and high-growth small enterprises. Since all three companies operate multiple businesses simultaneously, applying a single industry multiple directly is inappropriate.

Microsoft: Analysis Range Approx. 26–30x

Microsoft's overall business model consists of the following parts:

• Microsoft 365 enterprise software subscriptions;
• Azure cloud computing;
• Dynamics and security products;
• Windows, devices, gaming, and other consumer businesses.

Enterprise software and cloud businesses feature recurring revenue, high customer migration costs, long-term contracts, and remaining performance obligations, so their overall valuation is typically higher than the median for ordinary mature software enterprises.

The forward PE analysis range constructed based on business structure and growth is approx. 26–30x. The current forward PE is 23.7x, below the lower bound of this range.

This discrepancy may correspond to market discounts on the following factors:

• Sustained increase in AI infrastructure capital expenditures;
• Decline in cloud business gross margins;
• Relatively limited growth speed in PC and Xbox consumer businesses;
• Impact of data center asset life and lease accounting adjustments on report comparability.

Alphabet: Analysis Range Approx. 22–27x

Alphabet's main businesses include:

• Search advertising;
• YouTube advertising and subscriptions;
• Google Cloud;
• Google Play, hardware, and other services;
• Long-term projects like Waymo.

The latest quarter's positive segment operating profits are approximately:

• Google Services: $39.5 billion;
• Google Cloud: $8.8 billion.

Google Cloud accounts for about 18% of the combined total of these two positive segment operating profits. Search, YouTube, and other platform services remain the primary profit sources.

The segment assumptions used for valuation analysis are:

• Google Services: Approx. 20–24x;
• Google Cloud: Approx. 30–35x;
• Separately considering net cash, option values like Waymo, and headquarters AI R&D expenses.

Comprehensively, the overall forward PE analysis range is approx. 22–27x. The current forward PE is 26.8x, near the upper end of the range.

This valuation includes the following assumptions:

• Search advertising continues to grow at or near double digits, or mid-to-high single digits;
• Google Cloud revenue and operating profit continue to expand;
• Current large-scale AI capital expenditures gradually convert into cloud revenue, advertising efficiency, or new product revenue;
• Investment revaluation gains are not considered sustainable core operating profits.

Amazon: Analysis Range Approx. 27–32x

Amazon's main businesses include:

• AWS;
• North America and International e-commerce;
• Advertising;
• Membership subscriptions;
• Logistics and third-party seller services.

Among TTM segment operating profits, AWS accounts for approx. 58.4%. Advertising has a high profit margin but is still included within related business systems and not disclosed as a complete independent segment.

Valuation analysis considers separately:

• AWS: Using software and cloud computing business multiples;
• Advertising: Using platform advertising business multiples;
• E-commerce and fulfillment: Using lower capital-intensive retail business multiples.

Comprehensively, the overall forward PE analysis range is approx. 27–32x. The current forward PE is 29.5x, located within the range.

Current pricing primarily includes the following assumptions:

• AWS maintains high revenue growth;
• AWS profit margins remain at a high level;
• Advertising business continues to grow faster than group revenue;
• Retail fulfillment efficiency continues to improve;
• Capital expenditure growth will not lead to sustained negative free cash flow in the long term;
• Core net profit achieves approx. 37% growth over the next twelve months.

IV. Deterministic Features of This Quarter's Financial Reports

Note that the cloud growth rates for the three are not entirely consistent in definition:

• Alphabet's disclosed Google Cloud includes cloud services and TPU system sales;
• Microsoft discloses Azure and other cloud service growth;
• Amazon AWS is an independent segment revenue.

Therefore, 82%, 43%, and 37% cannot be directly interpreted as simultaneous changes in market share.

V. Microsoft Financial Report Characteristics

FY2026 Fourth Quarter:

• Revenue $90.0 billion, up 18% YoY;
• Operating profit grew 18%;
• EPS grew 23% excluding OpenAI investment impact;
• Azure revenue grew 43%;
• Operating cash flow $55.4 billion;
• Free cash flow $19.6 billion;
• Capital expenditures $41.0 billion.

Commercial Remaining Performance Obligations (RPO) reached $678.0 billion. Even excluding OpenAI-related contracts, RPO still grew 25%, with approx. 30% expected to be recognized in the next twelve months.

This means Microsoft's future revenue visibility mainly comes from:

• Enterprise software subscriptions;
• Azure contracts;
• Long-term cloud infrastructure commitments;
• Remaining performance obligations signed but not yet recognized.

Management expects:

• FY2027 Q1 Azure to grow approx. 45% at constant exchange rates;
• FY2027 H1 Azure growth rate may still increase;
• FY2027 revenue and operating profit to maintain double-digit growth;
• Full-year free cash flow to remain positive.

Deterministic variables requiring continuous observation include:

1. 2026 calendar year capital expenditures estimated at approx. $175 billion;
2. Cloud business gross margin has dropped to 65%;
3. Data center asset estimated useful life extended from 15 to 25 years;
4. Some future leases may shift from finance leases to operating leases;
5. Changes in asset life and lease classification may reduce short-term depreciation and reported capital expenditures;
6. Whether AI infrastructure investments can convert into Azure revenue and long-term contracts;
7. Quarterly volatility in OpenAI and Anthropic-related investment income.

The main variables upon which Microsoft's current valuation relies are Azure growth rate, RPO realization, cloud gross margin, and capital expenditure returns.

VI. Alphabet Financial Report Characteristics

2026Q2:

• Revenue $119.8 billion, up 24% YoY;
• Operating profit grew 30%;
• Operating profit margin rose to 34%;
• Search revenue grew 17%;
• Google Cloud revenue grew 82%;
• Google Cloud operating profit rose from $2.8 billion to $8.8 billion.

GAAP EPS was $9.11, with investment income contributing $6.26. Excluding this, core EPS was approx. $2.85, while market expectation was approx. $2.89.

Regarding cash flow:

• Operating cash flow $39.1 billion;
• Capital expenditures $44.9 billion;
• Free cash flow was -$5.9 billion.

The direction of cash flow after capital expenditures differs from the growth in revenue and operating profit for the quarter, mainly because AI infrastructure investment exceeded the incremental operating cash flow for the quarter.

Regarding capital arrangement:

• 2026 capital expenditure guidance raised to $195B–$205B;
• Management expects 2027 capital expenditures to continue increasing;
• Completed $49.6 billion in equity and convertible preferred stock financing;
• Established an ATM issuance plan of up to $40 billion.

Deterministic variables requiring subsequent observation include:

1. Whether search revenue growth can be maintained;
2. The impact of AI search features on search usage, ad clicks, and cost-per-click;
3. The specific contribution of cloud services vs. TPU system sales within Google Cloud's 82% growth;
4. Whether Cloud operating profit growth can continue to outpace revenue growth;
5. Whether capital expenditure growth will continue to pressure quarterly free cash flow;
6. The impact of investment fair value changes on GAAP EPS;
7. The actual scale of equity financing and ATM plan usage;
8. Return on assets after continued increases in 2027 capital expenditures.

The main variables upon which Alphabet's current valuation relies are search growth, Cloud profit expansion, and AI capital expenditure conversion efficiency.

VII. Amazon Financial Report Characteristics

2026Q2:

• Revenue $200.6 billion, up 20% YoY;
• Operating profit grew 43%;
• AWS revenue $42.2 billion, up 37% YoY;
• AWS operating profit $16.6 billion;
• AWS operating profit margin 39.4%;
• Advertising revenue grew 26%.

AWS revenue growth accelerated while maintaining a high operating profit margin. E-commerce, advertising, and cloud businesses all achieved revenue or profit expansion in the same quarter.

Regarding cash flow:

• TTM operating cash flow increased 33% YoY to $161.4 billion;
• TTM free cash flow turned from +$18.2 billion last year to -$7.6 billion;
• Property and equipment investment increased by $66.1 billion YoY;
• 2026 capital expenditure plan raised to approx. $220 billion.

Third-quarter guidance is:

• Revenue $197B–$202B, up 9%–12% YoY;
• If excluding Prime Day cross-quarter impact, growth rate would be approx. 4 percentage points higher;
• Operating profit $22.5B–$26.5B.

AWS remains in a state of constrained capacity supply, with some 2027 new capacity already booked by customers.

Deterministic variables requiring subsequent observation include:

1. The production schedule for AWS new capacity;
2. The time taken for booked capacity to convert into revenue;
3. Whether AWS operating profit margin can be maintained near 40%;
4. Whether advertising revenue can continue to grow faster than overall group growth;
5. North America and International e-commerce fulfillment efficiency;
6. The impact of $220 billion capital expenditures on future depreciation and free cash flow;
7. When TTM free cash flow will recover to positive;
8. The quarterly impact of Anthropic investment revaluation on GAAP net profit;
9. Whether the approx. 37% forward core earnings growth can be realized.

The main variables upon which Amazon's current valuation relies are AWS growth, AWS profit margins, retail efficiency, and free cash flow recovery after capital expenditures.

VIII. Assumptions Reflected by Current Pricing for the Three Companies

Microsoft

The current 23.7x forward PE mainly reflects:

• Azure maintaining short-term growth of approx. 40% or near that level;
• RPO gradually recognizing revenue;
• Controllable decline in cloud gross margin;
• AI capital expenditures not exceeding cash flow growth in the long term;
• Enterprise software subscriptions continuing stable growth.

Alphabet

The current 26.8x forward PE mainly reflects:

• Search business continuing to grow;
• Google Cloud maintaining growth higher than the group average;
• Cloud operating profit continuing to expand;
• Investment revaluation gains not included in core valuation;
• AI capital expenditures converting into revenue and profit in the future;
• Current high capital expenditures not suppressing free cash flow in the long term.

Amazon

The current 29.5x forward PE mainly reflects:

• AWS revenue maintaining high growth;
• AWS profit margins maintained at a high level;
• Continued increase in advertising and retail business profits;
• Large-scale 2026 capital expenditures forming subsequent sellable capacity;
• Free cash flow recovering after capital expenditure growth slows;
• Core net profit growing approx. 37% over the next twelve months.

IX. Conclusive Description

The current PEs of the three companies need to be adjusted for investment income before comparison:

• The difference between Microsoft's GAAP net profit and core net profit is relatively limited;
• About 47% of Alphabet's net profit over the past twelve months came from equity investment revaluations;
• Amazon's net profit is also significantly affected by fair value changes in Anthropic investments.

The profit structures of the three companies manifest as follows:

• Microsoft: Enterprise software subscriptions, Azure, and long-term contracts form the main profit foundation;
• Alphabet: Search and platform advertising remain the main profit sources, with Google Cloud profit share increasing;
• Amazon: AWS contributes most of the segment operating profit, with advertising and retail efficiency constituting other profit sources.

The key areas for subsequent observation for the three companies are:

• Microsoft: Azure growth rate, RPO realization, cloud gross margin, and capital expenditure returns;
• Alphabet: Search growth, Cloud profit, TPU sales structure, and free cash flow;
• Amazon: AWS capacity production, profit margins, retail efficiency, and cash flow recovery after capital expenditures.

Therefore, comparing the three companies should not rely solely on cloud revenue growth or surface GAAP PE, but should simultaneously use core earnings PE, overall business models, capital intensity, cash flow, and subsequent quarterly guidance.$Microsoft(MSFT.US) $Alphabet(GOOGL.US) $Amazon(AMZN.US)