Alphabet Revenue Jumps 25% to $127.58 Billion, Missing Estimates as Search Growth Slows
Key Facts
Alphabet reported revenue of $127.58 billion in the third quarter of 2026, up 25% from a year earlier but below analysts’ average estimate of $127.97 billion, according to the Associated Press. Search and advertising revenue did not contract: Google Search and other advertising revenue rose 12% to $63.3 billion, while YouTube advertising increased 9% to $11.2 billion. Both increases, however, fell short of some analysts’ expectations, refocusing attention on the pace of search growth and the company’s ability to keep up with market expectations. An investment portfolio manager said investors worried that artificial intelligence could take market share from search “need to see search accelerate, not slow down.” The results put strong revenue growth alongside slower-than-expected performance in Google’s core advertising business.
Other indicators of Alphabet’s business were mixed. Google Cloud revenue rose 103% year over year to $30.7 billion, with strong demand for infrastructure and artificial intelligence solutions, the company said. The chief executive said those two areas are major drivers of cloud growth. By contrast, free cash flow was negative $9.1 billion for the quarter, while analysts had expected it to be near break-even, according to Reuters. The gap puts cash flow under scrutiny as the company expands its artificial intelligence spending. The chief financial officer said Alphabet still expects a significant increase in capital expenditures in 2027 and will provide more details during its fourth-quarter earnings call.
The decline in Alphabet’s reported profit was affected by losses on equity investments, not a fall in advertising revenue. Net income was $26.17 billion from July to September, compared with $34.98 billion a year earlier. The company recorded an $8.7 billion loss on equity investments, reducing earnings per share by 55 cents. Reported earnings per share were $2.12, below estimates of about $3.01, according to the Associated Press. The agency said pressure on the company included growth expectations and investor concerns about the scale of artificial intelligence spending. Alphabet also said year-over-year growth in search queries reached its highest rate in five years, indicating that usage continued to expand despite revenue growth slowing relative to some analysts’ expectations.
The mixed results were reflected in trading in both stocks and the broader market. Alphabet shares fell more than 10% to $289.95 in after-hours trading on Wednesday, October 28, according to the Associated Press. In Thursday trading, the stock fell 12.3% and was heading for its worst day since it began trading more than 20 years ago; the S&P 500 was down 0.4% and the Nasdaq Composite 1.3% at the time cited in the report. Closing data show that Alphabet ended October 28 at $324.89 and closed at $284.74 on October 29. The agency said investor concerns included slowing search growth and artificial intelligence spending, while the results renewed worries about the rising cost of that spending.
Microsoft, by contrast, reported revenue of $92.3 billion in its fiscal first quarter ended September 30, 2026, up 19% year over year, while Microsoft Cloud revenue reached $63.9 billion, up 30%. Azure generated revenue of $33.17 billion, an increase of 48%, topping Visible Alpha’s estimate of $32.84 billion, compared with revenue of $29.4 billion in the previous quarter. The chief financial officer said the company exceeded expectations for revenue, operating income and earnings per share. Microsoft shares rose about 6% in extended trading after the results were announced on October 28, then gained 3.6% in premarket trading on October 29, according to Reuters. Closing data show the stock ended October 28 at $531.01 and closed at $524.43 the following day.
As it funds its plans, Microsoft said in a preliminary prospectus that net proceeds from the bond sale would be used for general corporate purposes. Those purposes may include working capital, capital expenditures, share repurchases, acquisitions and repayment of outstanding debt, according to the filing with the U.S. Securities and Exchange Commission. The company therefore does not restrict the use of proceeds to artificial intelligence or cloud infrastructure. This comes as Azure grows and Microsoft Cloud revenue expands, while Alphabet continues to expect a significant increase in capital expenditures in 2027. Alphabet’s chief financial officer said further details on that spending would be presented during the fourth-quarter earnings call.