Alphabet plunges 12.9% as free cash flow deficit reaches $9.07 billion
Key Facts
Alphabet shares fell 12.9% during Thursday’s session, after dropping 10% in after-hours trading on Wednesday to $292.38 following the release of third-quarter results. The pressure came amid slower search growth and concerns about AI spending, according to an Associated Press report. The stock closed at $284.74 on October 29, compared with a close of $324.89 on October 28, according to EL7 data. The shares were on track for their worst day since they began trading more than 20 years ago. In the same session, the Nasdaq fell 1.5% and the S&P 500 declined 0.5%, according to the agency.
Alphabet revenue rose 25% year over year to $127.58 billion in the third quarter, but fell short of the $127.97 billion average analyst estimate, the Associated Press reported, citing a FactSet survey. The company missed expectations despite revenue growth accelerating from 24% in the previous quarter, when it reported $119.8 billion and beat the average estimate of $117.06 billion. Cloud was the leading source of growth, with Google Cloud revenue rising 103% to $30.7 billion. The company attributed the performance to demand for infrastructure and AI solutions, alongside core cloud computing services and TPU chip sales. But the cloud boom did not offset the effect of relative weakness in its largest advertising businesses.
Search and other advertising revenue rose 12% to $63.3 billion, while YouTube advertising revenue increased 9% to $11.2 billion, the Associated Press reported. The agency described both gains as below some analysts’ expectations, highlighting a slowdown in search activity as investors watch the impact of AI tools on Google’s advertising model. An investment official at Aptus Capital Advisors said investors concerned that AI could take market share from search “want to see search accelerating, not slowing.” By contrast, CEO Sundar Pichai said the year-over-year growth rate in search queries reached its fastest pace in five years. He added that AI investments are supporting growth in usage and commercial queries.
Net income fell to $26.17 billion in the July-to-September period, from $34.98 billion in the same period a year earlier, the Associated Press reported. Earnings were $2.12 per share, affected by an $8.7 billion loss on equity investments that reduced earnings per share by 55 cents. Free cash flow also posted a deficit of $9.07 billion, compared with expectations for a deficit of about $2.70 billion, as capital expenditures rose to $51.36 billion. Free cash flow had posted a deficit of $5.9 billion in the second quarter. Reuters said spending to expand cloud capacity and fund AI research drove the increase in cash losses.
Purchases of property and equipment exceeded $51 billion in the third quarter, spending that heightened concerns about the cost of data centers and AI chips, the Associated Press reported. The expansion is taking place alongside cloud growth, but raises the company’s cash needs while search and advertising remain central to its business. Pichai also said the Gemini app reached 1 billion users in October, describing its growth as the fastest in Google product history. He said accelerating search growth reflects support from AI investments, while investors await evidence of how that usage will translate into revenue. Chief Financial Officer Anat Ashkenazi expects capital expenditures to remain sharply higher in 2027, with the company set to provide further details on its fourth-quarter earnings call.