TLDR
- Alphabet (GOOGL) stock fell 9% to $297.02 after hours following a Q3 report that missed estimates.
- EPS was $2.12 versus the $3.02 consensus, and revenue rose 25% to $127.6 billion.
- Google Cloud revenue grew 103% to $30.71 billion, with operating profit of $11.1 billion beating forecasts.
- Free cash flow was negative $9.1 billion, and capex hit $51.4 billion in the quarter.
- Alphabet expects about $200 billion in capex this year, with spending set to rise in 2027.
Alphabet (GOOGL) stock fell 9% to $297.02 in after-hours trading on Wednesday. The drop came after a third quarter report that missed on earnings and revenue.
Alphabet earned $2.12 per share, down from $2.87 a year ago. Analysts were looking for $3.02.
Revenue rose 25% to $127.6 billion, just under the $128 billion forecast. Revenue excluding traffic acquisition costs was $111.21 billion, against $111.29 billion expected.
Google Cloud did its job. Revenue hit $30.71 billion, ahead of the $29.1 billion estimate, with growth of 103%.
Cloud operating profit came in at $11.1 billion versus the $9.8 billion analysts expected. That is a strong print by any measure.
Where the Quarter Fell Short
Google Services was the problem. Operating income was $39.2 billion, below the $40.8 billion Wall Street wanted.
Advertising sales were $82.01 billion against expectations of $83.5 billion. CEO Sundar Pichai blamed foreign exchange for much of the slower search growth.
He also said searches in “AI Mode” earn less money for Google. Still, he called AI agents “an expansion opportunity” for search.
Cash is the other sore spot. Free cash flow was negative $9.1 billion, worse than negative $5.85 billion in Q2.
Capital expenditures reached $51.4 billion in the quarter. Alphabet expects around $200 billion for the year, which implies about $68 billion in Q4.
CFO Anat Ashkenazi said spending will rise sharply in 2027. Purchase commitments stand at $924 billion.
Alphabet has gone three straight quarters without buybacks, the first time since 2015, per FactSet. It has issued $85.2 billion in debt this year.
It also raised $42.9 billion from stock sales and $19 billion in mandatory convertible preferred stock. Funding the buildout has been a full-time job.
Product News and Analyst Views
The report followed the launch of Gemini 4 Carbon. Google says it beats Gemini 4 Argon, released two weeks ago, plus GPT-6 Astra and Claude Opus 5.5.
The Gemini app now has more than 1 billion users. Pichai called it the fastest-growing app in company history.
Dan Ives of Yorkville Ives took the bullish side. He said cloud doubling on contracted demand settles the demand side of the capex debate for the quarter.
Competition is in focus too. Meta CEO Mark Zuckerberg said 10 million people have set up its Muse AI agent, mostly for shopping.
Anthropic’s IPO filing mentions Google 109 times. It lists a $114.5 billion cloud agreement through 2033.
Oracle said Tuesday it will be the first company to buy Google’s AI processors for its own data centers. Last week, CoreWeave sold off over its debt load.
GOOG closed Wednesday at $321.89. In premarket trading Thursday it was at $289.39, down 10%.
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