Alphabet reported third-quarter revenue of $127.58 billion on Wednesday, a 25% jump from a year earlier, but the results still fell short of Wall Street's expectations and sent the Google parent company's stock tumbling in after-hours trading. Net income dropped to $26.17 billion, or $2.12 per share, down from $34.98 billion, or $2.87 per share, in the same quarter last year.
The Mountain View-based company's shares fell about 9% to $295.20 within an hour after the market closed Wednesday, according to the San Francisco Chronicle. Other outlets reported steeper or shallower drops: MarketScreener put the decline at more than 10% in extended trading, while Investing.com reported an 8.5% slide. FactSet-polled analysts had expected Alphabet to post $127.97 billion in revenue, per the Chronicle, while estimates cited elsewhere ranged as high as $128.22 billion.
Alphabet reported $2.12 in net income per share. Analysts had estimated adjusted earnings per share around $3.02, according to CNBC and MarketScreener. The figures use different measures and are not directly comparable.
Free Cash Flow Turns Negative Amid AI Buildout
Perhaps the most striking number in the earnings report was Alphabet's free cash flow, which swung to negative $9.07 billion for the quarter, according to CNBC. Capital expenditures totaled $51.36 billion, falling short of the $55.09 billion analysts had expected, the outlet reported. The company also recorded an $8.7 billion net loss on equity securities during the quarter, according to Alphabet's own earnings release.
The cash burn reflects a broader pattern across the industry. Losses were driven by spending to boost cloud capacity and fund AI research, per the same MarketScreener report cited above. Alphabet, Microsoft, Amazon and Meta are projected to collectively spend well over $700 billion in 2026 on AI data centers, chips and high-performance networking, the outlet noted, citing medium-confidence figures.
Alphabet kept its 2026 capital-expenditure guidance unchanged at $195 billion to $205 billion, a range it had already raised in July from an earlier $180 billion to $190 billion target, according to Variety. That steady guidance suggests the company isn't backing off its AI bet despite the market's reaction to this quarter's cash crunch.
Cloud Growth and Gemini's Billion-User Milestone
Not every number disappointed. Google Cloud revenue more than doubled, rising 103% to $30.7 billion, exceeding analyst expectations of $28.7 billion, per CNBC's report. That growth keeps Alphabet positioned as the third-largest cloud-services provider globally, behind Amazon Web Services and Microsoft's Azure, according to the MarketScreener analysis.
The company also touted a milestone for its flagship AI product. Alphabet's earnings release stated that the Gemini app, Google's artificial intelligence assistant, has reached one billion users. Alphabet and Google CEO Sundar Pichai said the quarter was strong and that the company was operating at a half-trillion-dollar revenue run rate, adding that Alphabet's revenue grew 25% year over year. Pichai also said Gemini is the fastest-growing product in Google's history.
Core Ad Business Lags Even as Operating Income Climbs
Google's advertising engines showed more mixed results. Search revenue grew 12% to $63.35 billion but fell short of a $64.96 billion estimate, CNBC reported. Google's core advertising business generated $82.01 billion in revenue, about $1.41 billion below expectations, according to MarketScreener.
Operating performance told a somewhat different story: operating income rose 30% to $40.6 billion, according to Investing.com. Research and development expenses climbed to $20.6 billion from $15.2 billion a year earlier, the outlet reported, underscoring just how much Alphabet is plowing back into its AI ambitions even as the bottom line takes a hit.
For now, investors appear to be weighing Alphabet's long-term AI and cloud bets against the near-term cost of chasing them. The company's strong cloud numbers and Gemini's user growth offer a counterweight to the revenue miss, but the negative free cash flow and shrinking margins gave Wall Street enough reason to send shares lower in Wednesday's after-hours trading.
