Google stock dropped more than 10% after Alphabet (GOOGL) delivered a $127.58 billion third quarter that fell short of Wall Street’s expectations. Revenue grew 25%, but spending on artificial
Google stock dropped more than 10% after Alphabet (GOOGL) delivered a $127.58 billion third quarter that fell short of Wall Street’s expectations. Revenue grew 25%, but spending on artificial intelligence left investors worried about cash.
Analysts surveyed by LSEG had expected $128.22 billion in sales and adjusted earnings of $3.02 per share. Alphabet reported just $2.67 in adjusted earnings per share. It was the company’s first double miss in almost four years.
Net income fell to $26.17 billion, or $2.12 per share, from $34.98 billion, or $2.87 per share, a year ago. Operating income reached $40.58 billion, below the $43.19 billion forecast compiled by FactSet.
But the number that really got investors talking was free cash flow. Alphabet recorded a negative $9.07 billion, compared with the $2.70 billion deficit analysts had penciled in. That raises questions about the payoff from AI.
Pure capital expenditures were estimated at $51.36 billion in the quarter, while forecasts suggested that they would be at $55.09 billion. However, the yearly budget will still remain very large. Alphabet maintains its budget estimate between $195 billion and $205 billion, revised up from its previous $190 billion target in the second quarter.
The budget is projected to exceed $200 billion for this year and is estimated to top $300 billion by 2027.
Finance chief Anat Ashkenazi told analysts, “We continue to expect our capex to increase significantly in 2027, and will provide further details on our Q4 call.”
There is also a growing debt tab. Alphabet’s long-term borrowing jumped from $21.6 billion a year ago to $125.1 billion, an increase of roughly 479%.
And the investment portfolio wasn’t much help. Equity holdings linked to companies including SpaceX and Anthropic helped produce a $99.03 billion gain in the second quarter. This time, that category registered an $8.66 billion loss.
The interesting part is that Alphabet’s AI business isn’t struggling to find customers. Google Cloud revenue more than doubled to $30.7 billion, comfortably beating the $28.7 billion analysts had expected.
Growth reached 103% as businesses rushed to buy computing power and AI tools. Google is gaining ground against Amazon Web Services and Microsoft Azure.
Google Cloud CEO Thomas Kurian told investors, “We are seeing extraordinary demand and strong growth from both AI labs, capital markets, financial service institutions, and enterprises.” It was his earnings-call debut.
The older money machine, Google Search, had a less convincing quarter. Revenue rose 12% to $63.35 billion but missed the $64.96 billion estimate. CEO Sundar Pichai said AI features are bringing in more searches, including commercial queries, and that annual query growth is now its strongest in five years.
Sundar told analysts:
“We had a strong quarter and are now on a half-trillion dollar revenue run rate. Our deep full stack approach is driving momentum across the business, with Alphabet revenues growing 25% year-over-year.”
There are plenty of usage numbers behind that push. The Gemini app now has one billion users, which Alphabet says makes it Google’s fastest-growing product ever.
YouTube Music and Premium have passed 150 million subscribers worldwide, including trials. Google’s own AI model interfaces are handling nearly 32 billion tokens a minute, more than four times last year’s volume, while demand for its custom TPU chips is rising.
Moreover, Sundar provided details about upcoming releases in AI. As Sundar mentioned, the new release Gemini 4 Argon has attracted many users but the even more advanced version of Carbon outperforms its predecessor in nearly all the tested categories, including programming, multimodal capabilities, scientific reasoning and deep knowledge.
The rating for Carbon was 59 on the upgraded Artificial Analysis Intelligence Index, which puts Carbon on the first place. Google provides the first preview of the product to the trustworthy security experts and the U.S. government.
Then there’s Genie 4, Google’s latest world model, which creates interactive, realistic digital environments with live audio. Google wants to use them to train robots and AI agents.
Sundar expects model development to speed up over the next year as AI helps improve AI research itself, a process he referred to as RSI. Smaller, cheaper and faster models are also on the way for developers and Google’s billions of users.
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