Alphabet (GOOGL) Q3: Cloud Sales Double, Stock Plunges 11% After Hours

Alphabet (GOOGL) reported third-quarter revenue of $127.58 billion, up 25% year on year but just short of the $128.2 billion analysts expected, according to LSEG data cited by Investing.com. Diluted earnings fell to $2.12 a share from $2.87 a year earlier, dragged down by an $8.66 billion loss on its stakes in other companies. The stock plunged 10.8% in after-hours trading to $289.89 as of 5:53 p.m. ET.

What stood out

Google Cloud, which rents computing power and Alphabet’s own AI chips to other companies, more than doubled. The release said sales of TPU systems, Google’s in-house AI processors, were “a meaningful contributor.” Cloud’s operating income rose to $11.12 billion from $3.59 billion a year earlier.

The problem was the core business. Search revenue grew 12% to $63.35 billion, below the $64.96 billion analysts expected, according to SiliconANGLE, which did not name a data provider. Total advertising revenue grew at its slowest pace in five quarters, Investing.com reported, even though Chief Executive Sundar Pichai said search queries were growing at their fastest rate in five years.

“We had a strong quarter and are now on a half-trillion dollar revenue run rate,” Pichai said in the release.

The cash question

Building AI capacity is now costing more than the business brings in. Capital expenditure, the money spent on data centers, servers and chips, more than doubled to $51.36 billion. That left free cash flow at minus $9.07 billion, the second negative quarter in a row, XTB and Investing.com noted.

Alphabet bought back no shares in the quarter, against $11.5 billion a year earlier, and raised $12.4 billion by selling new Class A and Class C shares, the release showed.

The outlook

Alphabet doesn’t forecast revenue. It kept its 2026 capital spending forecast at $195 billion to $205 billion, Investing.com and SiliconANGLE reported, and signaled a sharp rise next year. “We continue to expect our capex to increase significantly in 2027,” Chief Financial Officer Anat Ashkenazi said on the call.

Our take

Cloud is the best number Alphabet has posted in years, and the TPU sales show its chips can earn money outside Google. But search pays for everything else, and it missed. With cash flow negative, no buybacks and new shares being sold, the next quarters need search to keep pace with the spending. We’ll watch the 2027 capex number when Alphabet gives it.