Alphabet Shares Fall 12.6% After Quarterly Revenue Miss and AI Spending Concerns
Key Facts
Alphabet Class A shares fell 12.6% on Thursday, October 29, in their worst session since beginning trading more than 20 years ago, according to the Associated Press. The decline came after the company reported third-quarter revenue of $127.58 billion, up 25% year over year, but below the average analyst estimate of $127.97 billion. The shares closed at $283.82, compared with the previous session’s close of $324.89, according to EL7 data. The stock had fallen more than 10% to $289.95 in after-hours trading on October 28, following the results announcement. The results show a contrast between strong cloud growth and continued revenue expansion on one hand, and a miss against expectations and relatively weak ad growth on the other.
Google Cloud drove a large share of revenue growth, with revenue rising 103% to $30.7 billion; TPU systems were important contributors to that growth, according to the company’s filing with the U.S. Securities and Exchange Commission. Alphabet said Google Cloud revenue increased $15.6 billion year over year, or 103%, while Google Services revenue rose $9.3 billion, or 11%. By comparison, Google Search and other advertising revenue increased 12% to $63.3 billion, and YouTube advertising rose 9% to $11.2 billion. The Associated Press said the increases in Search and YouTube came in below some analysts’ expectations. Still, the company said the year-over-year growth rate in Search queries reached its highest level in five years, reflecting broader usage alongside investor questions about the pace of advertising revenue growth.
Net income available to common shareholders fell to $26.17 billion in the third quarter, from $34.979 billion in the same period a year earlier, according to the regulatory filing. Diluted earnings per share declined to $2.12 from $2.87. The company recorded a net loss of $8.664 billion on securities, compared with a gain of $10.734 billion a year earlier. This investment item shows one source of pressure on earnings, while revenue growth remained primarily supported by cloud and services. In a market increasingly concerned that AI tools could erode Search’s business, David Wagner of Aptus Capital Advisors said investors want to see Search “accelerating, not slowing.”
Infrastructure spending emerged as another focus in the assessment of the results, after Alphabet reported capital expenditures of $51.4 billion in the third quarter, against operating cash flow of $42.3 billion. In the nine months ended September 30, 2026, the company spent $132.0 billion on capital expenditures, compared with $63.6 billion in the same period of 2025. At the same time, the company announced that the Gemini app had reached one billion users, and CEO Sundar Pichai described it as “the fastest-growing product in Google’s history.” But growth in the app’s user base alone does not answer investors’ question about the financial returns from expanding in AI, as infrastructure costs rise. Alphabet said capital expenditures will increase “significantly” in 2027, and that it will provide more details during its fourth-quarter earnings call.
The decline affected U.S. stock indexes in the October 29 session: the Nasdaq Composite fell 1.4% and the S&P 500 declined 0.3%, with Alphabet the main reason for their losses, according to the Associated Press. Even so, four out of five stocks in the S&P 500 rose, and the index would have closed higher without Alphabet’s decline. Reuters estimated during trading that the company was on track to lose more than $500 billion in market value, accounting for most of the losses the Nasdaq-100 was at risk of wiping out, which totaled more than $693 billion if the declines continued. Those were estimates during the session, not the final tally of realized losses. Attention now turns to the fourth-quarter earnings call, where the company said it would explain its 2027 capital expenditure outlook in greater detail.