"The Moment of Truth": Alphabet Shares Plunge 10% After Disappointing Earnings Report

Google's parent company, Alphabet, disappointed investors with its third-quarter earnings report: its revenue and profits fell short of analysts' expectations. The company’s massive investments in artificial intelligence have not yet yielded sufficient returns, according to Bloomberg. Alphabet’s stock plummeted more than 10% in after-hours trading following the release of the earnings report.

Alphabet's revenue in the third quarter rose 25% year-over-year to $127.6 billion. Earnings per share fell 26% to $2.12. Both figures fell short of forecasts. According to LSEG, analysts had expected revenue of $128.2 billion and earnings of $3.02 per share, CNBC reports.

Net income plummeted by 24% to $26.47 billion. Earnings were negatively impacted by investments in other companies’ stocks, which resulted in a loss of $8.7 billion, compared with a gain of $10.73 billion a year earlier. This marks a sharp reversal from the significant gains in the second quarter, driven primarily by Alphabet’s stakes in SpaceX and a private company that, according to Bloomberg, is Anthropic.

Capital expenditures more than doubled year-over-year, reaching $51.36 billion. Alphabet maintained its capital expenditure forecast for 2026 at $195–205 billion.

Advertising revenue, which the company uses to fund investments in artificial intelligence, totaled $82 billion, compared with expectations of $83.6 billion. The company told analysts that AI-powered search is slowing the growth rate of advertising revenue: Google is seeing “lower monetization” from such queries.

Alphabet's free cash flow was negative for the second consecutive quarter: the deficit totaled $9.1 billion, compared with $5.9 billion in the second quarter. Alphabet’s long-term debt rose 479% over the past year—from $21.6 billion to $125.1 billion.

Following the release of the report, Alphabet shares fell 10.4% in after-hours trading in New York, to $291.1.

The stock decline wasn't even tempered by the fact that revenue from Google Cloud, — one of the key indicators of demand for AI products that investors track — rose by a record 103% year-over-year, to $30.7 billion. Analysts had expected $29.1 billion, according to Bloomberg. The division’s operating profit more than tripled, reaching $11.1 billion compared with the expected $9.8 billion.

“The cloud business was the only segment that exceeded expectations, posting 103% growth,” said Jefferies analyst Brent Till on CNBC. “Wall Street had expected 100%, so the beat was modest. Furthermore, the result fell short of some of the highest forecasts. All other metrics came in below expectations.”

“This is a blip in the AI boom, not a turning point,” noted Ethan Feller, a strategist at Zacks Investment Research, in a note. “The demand is clear: the 103% growth in the cloud business settles the matter. Whether this will be a hindrance to the broader AI narrative depends on how the other hyperscalers report their results.”

“This quarter looks like a moment of truth for Alphabet: either CEO Sundar Pichai and his team will fix their approach to AI monetization, or the tech giant risks losing its leadership in several key business areas in the near future, ” said Thomas Monteiro, senior analyst at Investing.com. “The cash burn continues to weigh more heavily on Alphabet than on its competitors, primarily due to the revenue situation.”

This article was AI-translated and verified by a human editor