Alphabet plunges 13.2% after revenue and earnings miss as AI spending concerns mount
Key Facts
Alphabet shares fell 13.2% in Thursday’s session on October 29 after the company’s third-quarter results came in below analysts’ average estimates for revenue and earnings per share, according to a Reuters report. The company’s shares, listed under the ticker GOOGL, closed at $284.74, compared with $324.89 at the previous session’s close, according to EL7 data. The shares had fallen more than 10% in after-hours trading following the results, according to The Associated Press. The agency attributed investors’ reaction to the results missing expectations and concerns about returns on heavy AI-related spending. Pressure spread across technology shares, with the Nasdaq Composite falling 1.66% and the S&P 500 losing about 0.63% in the session, according to Reuters.
Alphabet reported revenue of $127.58 billion for the quarter ended September 30, up 25% year over year, but below analysts’ average estimate of $127.97 billion, according to The Associated Press. The shortfall was not limited to revenue: net income was $26.17 billion, down from $34.98 billion in the same period a year earlier. The company reported earnings per share of $2.12, compared with analyst estimates near $3.01. The company attributed part of the decline in profitability to an $8.7 billion loss on equity investments, according to the agency. The figures set strong sales growth against declining profits and a gap versus expectations, factors The Associated Press linked to the stock’s fall after the results were announced.
The company’s results showed a contrast between its advertising business and cloud computing operations. Google Cloud revenue surged 103% to $30.7 billion in the third quarter, according to The Associated Press. In advertising, revenue from search and other ads rose 12% to $63.3 billion. YouTube advertising revenue also increased 9% to $11.2 billion. The company said its Gemini app had reached one billion users, describing it as the fastest-growing product in Google’s history. This expansion in users and cloud growth stand alongside the market’s questions, reported by the agency, about the scale of AI spending and the returns it can generate.
Separately, Christine Lagarde informed the Governing Council and the president of the European Council that she would step down as European Central Bank president on February 7, 2027, according to a bank statement. Her term had been due to end on October 31 of the same year, according to The Associated Press. Lagarde said her wish to speak freely about issues beyond monetary policy was behind her decision to leave before her scheduled departure. She added: "I want freedom of speech, freedom of expression and freedom to participate in matters that are not related to monetary policy." The European Council will appoint her successor after a nomination process, while the early announcement allows EU leaders to begin selection talks before the French presidential election, according to The Associated Press.
Lagarde’s announcement came on a day when the European Central Bank left interest rates unchanged, as she warned that a broader and more persistent energy shock, and its indirect and second-round effects, could push up inflation and reduce growth. Eurozone inflation rose to 3.8% in September from 3.2% in August, while energy inflation climbed to 18.9% from 14.3%, according to bank data. By contrast, employee compensation growth slowed to 3.3% in the second quarter of 2026, from 3.6% in the first quarter, and Lagarde said negotiated wage growth could range between 2.5% and 2.8% in the remaining months of the year. She said the gradual easing of energy inflation and the effect of higher interest rates should support a return of inflation to the bank’s 2% target over the medium term. On growth, the bank said AI investment and government spending on infrastructure and defense were supporting economic activity.
At Alphabet, attention is turning to further details on capital expenditure plans after the chief financial officer said the company still expects a significant increase in spending in 2027. She added that more details would be presented during the fourth-quarter earnings call. This comes as third-quarter results showed rapid growth in Google Cloud revenue, alongside increases in search and YouTube advertising revenue. But the company’s overall revenue and earnings per share remained below analysts’ average estimates, according to The Associated Press. Investors are therefore awaiting the company’s clarification on how capital expenditure will develop next year, as the agency linked the stock’s decline to concerns about returns on AI investments.