Alphabet’s Capital Spending Jumps to $51.4 Billion as Free Cash Flow Turns Negative
Key Facts
Alphabet reported third-quarter results on October 28, posting earnings per share of $2.12, compared with the analyst consensus estimate of $3.02, according to Investing.com coverage. The earnings miss came as revenue rose 25% year over year to $127.6 billion, slightly exceeding estimates of $127.22 billion. At the heart of the results, Google Cloud combined strong revenue growth with improved operating income, as capital spending climbed to $51.4 billion during the quarter. That spending pushed free cash flow to negative $9.1 billion, according to the same coverage. Cloud business expansion thus coincided with pressure on reported earnings and available liquidity during the quarter.
Google Cloud revenue rose 103% to $30.7 billion in the third quarter, while the segment’s operating income climbed to $11.1 billion, compared with $3.6 billion a year earlier. The figures reflect simultaneous growth in the scale and profitability of the business, with operating income widening its lead over the year-earlier period. The coverage said Google Cloud was “the standout performer once again,” pointing to the revenue jump. That performance came as Alphabet’s total revenue grew 25% to $127.6 billion. But the company’s revenue beat was limited, exceeding the $127.22 billion estimate by only a small margin.
Capital spending, meanwhile, reached $51.4 billion, compared with $24.0 billion in the third quarter of the previous year, while the total since the start of 2026 reached $132.0 billion. The comparison puts quarterly spending at more than twice its level a year earlier, while the nine-month figure shows the pace of investment continued throughout the year. The coverage said spending weighed on cash generation, with free cash flow turning negative $9.1 billion during the quarter. That compares with Alphabet’s second-quarter figures, when operating cash flow was $39.1 billion and capital spending was $44.9 billion. The two quarters’ figures show investment continuing to rise, while the cash measures cited in the disclosures differ: operating cash flow in the second quarter and free cash flow in the third.
The decline in earnings per share did not reflect operating performance alone: consolidated operating income rose 30% to $40.6 billion. The company, however, recorded a net loss of $8.7 billion on securities, weighing on results. The loss reduced net income by $6.7 billion after tax, or $0.55 per diluted share, according to the coverage. Operating income growth therefore coincided with a negative investment impact on net income and earnings per share. These items help explain the gap between improving operating activity and earnings per share falling short of the analyst consensus.
Alphabet had raised its 2026 capital spending forecast on July 22 to a range of $195–205 billion, from $180–190 billion previously. Reuters, via Investing.com, reported the company’s new forecast range and said the finance chief had stated that demand continued to outpace investment. This coincided with growing demand for cloud services; at the end of the second quarter, remaining performance obligations stood at $519.5 billion, of which $513.9 billion was tied to Google Cloud. The company expected to recognize slightly more than half of the obligations balance as revenue over the 24 months following the end of June. The balance provides context for the scale of cloud-related orders, while their conversion into revenue remains spread over the period specified by the company.
In the market, Alphabet shares fell about 7% after the results were announced, according to the headline of coverage published on the day of the announcement. Google shares closed at $324.86 on October 28, according to EL7 data; this is the daily closing price, not a live quote. The coverage linked the reaction to earnings falling short of expectations, despite revenue exceeding analyst estimates and Google Cloud’s growth. The reaction thus brought together mixed signals: rapid expansion in the cloud segment, higher capital spending, and a negative impact on cash and earnings per share. In its second-quarter results, Alphabet had said Gemini models processed 22 billion tokens per minute through APIs, and that the Gemini app had reached 950 million monthly active users. It also reported at the time that nearly 90% of Fortune 100 companies used Gemini Enterprise, amid the expansion of its artificial intelligence and cloud services.