Alphabet Reports $8.7 Billion Investment Loss as EPS Falls to $2.12

Key Facts

Alphabet reported third-quarter results on Wednesday, October 28, with revenue of $127.58 billion, up 25% year over year, and earnings per share of $2.12. Revenue fell short of the $127.97 billion average analyst estimate, while net income declined to $26.17 billion for the July-to-September period from $34.98 billion a year earlier. The company attributed part of the pressure on earnings to an $8.7 billion loss on equity investments, which reduced earnings per share by 55 cents. Analysts had estimated earnings per share at about $3.01. After the results were announced, Alphabet shares fell more than 10% in after-hours trading to $289.95.

The chief financial officer said on the earnings call that net other expenses totaled negative $8.2 billion, attributing this mainly to an unrealized loss on Alphabet’s investment in SpaceX after the company’s share price fell during the quarter. The SpaceX loss therefore accounted for part of a broader loss on equity investments, and the company did not specify a separate amount attributable solely to SpaceX. The effect was reflected in other income and expenses and earnings per share, while operating income rose 30% to $40.6 billion. The operating margin was 31.8% for the quarter. These figures show a divergence between the impact of the unrealized investment loss and growth in the company’s operating business.

Google Cloud emerged as Alphabet’s fastest-growing segment, with revenue rising 103% to $30.7 billion. The company said growth came from strength in cloud computing and AI services, including infrastructure, solutions and core cloud activities. Sales of TPU systems also contributed to revenue growth. The segment’s operating income was $11.1 billion, more than tripling year over year. By comparison, revenue from Search and other Google advertising rose 12% to $63.3 billion, while YouTube advertising revenue increased 9% to $11.2 billion.

The chief executive said the year-over-year growth rate in Search queries reached its highest level in five years, but revenue from Search and other advertising fell short of some analyst expectations. This raised concerns about a slowdown in advertising business growth, despite revenue increasing during the quarter. The concern coincided with disappointment over total revenue, which rose 25% but remained below the analyst average. In trading on Thursday, October 29, Alphabet shares fell 12.3%, putting them on track for their worst day since they began trading more than 20 years ago. The Nasdaq Composite fell 1.3% in the same session amid investor concerns about the cost of AI investments.

The company continues to direct substantial investment toward infrastructure, keeping its 2026 capital expenditure estimate at a range of $195 billion to $205 billion. The chief financial officer said capital spending would continue to rise significantly in 2027, and that the company would provide further details during its fourth-quarter results call. Alphabet also expects investment in technical infrastructure to weigh on earnings through higher depreciation and data center operating costs. The company began using third-party computing capacity at the end of the third quarter and will expand its use in the fourth quarter, with near-term pressure on Google Cloud margins expected. The chief financial officer said Search growth would face a tougher comparison in the fourth quarter after accelerating a year earlier.

On products and cloud infrastructure, the chief executive said the Gemini app had reached one billion users by the time results were announced. The company expects TPU system sales to continue expanding in the fourth quarter, with a meaningful increase in revenue from them beginning in 2027. Growing Cloud revenue supports this trajectory, after the segment recorded $30.7 billion in the third quarter and operating income of $11.1 billion. According to SpaceX’s filing with the U.S. Securities and Exchange Commission, its third-quarter revenue was $14.6 billion, up 161% from the same period, and it recorded net income of $4.4 billion, compared with a net loss of $1.1 billion a year earlier. Alphabet shares had closed at $324.89 on October 28, before falling in trading after the results were announced.