Alphabet Shares Fall 12.6% as Free Cash Flow Posts $9.07 Billion Deficit

Key Facts

Alphabet Class A shares fell 12.6% on October 29, their worst daily performance since they began trading more than 20 years ago, as concerns grew over the cash returns on the company’s investments in artificial intelligence. The company posted negative free cash flow of $9.07 billion in the third quarter, compared with a deficit of $5.9 billion in the previous quarter, according to figures reported by Reuters via Investing.com. This was the first time free cash flow had turned negative in Alphabet’s 22-year history as a public company. Meanwhile, the company’s purchases of property and equipment exceeded $51 billion during the quarter, and it said it consumed more cash under the free cash flow measure, according to AP. The figures put the company’s rapid growth up against the cost of expanding the infrastructure needed to meet demand for AI services.

Alphabet’s third-quarter revenue rose 25% year over year to $127.58 billion, but came in below the average analyst estimate of $127.97 billion, according to AP. The results showed a divergence between the company’s two main businesses: Google Cloud revenue rose 103% to $30.7 billion, and the company said demand for AI infrastructure and solutions drove the unit’s record growth. By contrast, revenue from Google’s core advertising business was $82.01 billion, about $1.41 billion below analyst estimates, according to Reuters via Investing.com. Google Search and other advertising grew 12% to $63.3 billion, while YouTube advertising revenue rose 9% to $11.2 billion, according to AP. UBS attributed its October 29 cut to the stock’s price target to Search and YouTube revenue falling short of market expectations, while maintaining its “Neutral” rating, according to Investing.com.

Alphabet earned $2.12 per share in the third quarter, hurt by an $8.7 billion loss on equity investments that reduced earnings by 55 cents per share, while analysts had estimated about $3.01, according to AP. That meant the earnings shortfall came alongside revenue below expectations, while cloud remained a clear bright spot in the results. Google Cloud revenue was about $30.7 billion, exceeding analyst estimates and more than doubling from a year earlier, according to Reuters via Investing.com. But that growth coincided with heavy capital spending and a record free cash flow deficit, making the cost of meeting demand a key focus for investors assessing the results. According to AP, pressure on AI stocks was also linked to concerns that the technological revolution may not deliver the profits and productivity investors expect, and to the cost of borrowing to finance AI chip purchases.

The decline extended to U.S. stock indexes on October 29, with the Nasdaq Composite falling 1.4% and the S&P 500 dropping 0.3%, despite four out of every five stocks in the broader index rising, according to AP. Alphabet shares closed at $283.82, while Meta shares closed at $624.52 and Amazon shares at $243.79, according to EL7 data. The figures reflect pressure concentrated in mega-cap technology stocks, despite gains among most S&P 500 stocks. In technology company results, Microsoft reported revenue of $92.3 billion for the quarter ended September 30, 2026, up 19% year over year, while Azure revenue rose 48%, according to an investor relations statement. Microsoft’s results provide a backdrop for comparing the growth of cloud computing services with the cost of investing in the capacity on which those businesses depend.

Alphabet’s management kept its 2026 capital spending range at $195 billion to $205 billion and expects another significant increase in 2027, according to the transcript of the company’s earnings call published by The Motley Fool. Management said further details on spending would be provided on the fourth-quarter earnings call. This follows purchases of property and equipment exceeding $51 billion in the third quarter, amid a free cash flow deficit of $9.07 billion. At the same time, Google Cloud revenue nearly doubled to $30.7 billion, highlighting the contrast between growing demand for the company’s services and its investment needs. Alphabet’s update to its spending outlook on the fourth-quarter call will be the next dated milestone to provide further details on its investment trajectory.