Alphabet Revenue Rises 25% to $127.6 Billion as Shares Fall 12.6%

Key Facts

Alphabet reported results on October 28 for the quarter ended September 30, with revenue of $127.6 billion, up 25% year over year, marking its 13th consecutive quarter of double-digit revenue growth. But revenue and earnings per share fell short of analyst estimates, while net income declined from the same period a year earlier. Class A shares fell 12.6% on Thursday, October 29, their worst daily performance since they began trading more than 20 years ago. The shares had dropped more than 10% to $289.95 in after-hours trading following the results announcement. GOOGL closed at $279.84 on October 30, according to EL7 data.

Actual revenue was $127.58 billion, compared with the FactSet consensus estimate of $127.97 billion, while earnings per share came in at $2.12, versus an analyst estimate of about $3.01. Net income was $26.17 billion, down from $34.98 billion a year earlier. The Associated Press reported that earnings per share included an $8.7 billion loss on equity investments, reducing earnings by 55 cents a share. By contrast, consolidated operating income rose 30%, and the operating margin was 31.8%. The figures highlight a divergence between profitability and revenue growth as the company faced questions about advertising strength and the cost of investment.

Google Services remained the largest revenue driver, with revenue rising 11% to $96.3 billion, supported by 12% growth in Search and related services. Search and other advertising revenue was $63.3 billion, up 12%, while YouTube advertising revenue rose 9% to $11.2 billion. The Associated Press reported that growth in Search and YouTube fell short of some analysts’ expectations. Alphabet said the year-over-year growth rate in search queries reached its highest level in five years. Management linked slower growth in search advertising to the use of AI Mode and plans to begin rolling out ads in the service to international markets.

By contrast, Google Cloud revenue rose 103% to $30.7 billion, with sales of TPU systems contributing to growth. Alphabet said demand for the systems is driving higher sales and that it expects sales to rise in the current quarter and then expand substantially in 2027. The company did not disclose separate revenue or margins for these chips. Cloud growth coincided with negative free cash flow of $9.1 billion, compared with analysts’ expectations that it would be close to break-even. Reuters attributed the cash pressure to the expansion of the cloud business and funding for AI development, while the Associated Press reported that purchases of property and equipment exceeded $51 billion in the quarter.

The chief financial officer added that the use of third-party cloud computing capacity would pressure Google Cloud margins in the near term. The company also said its inventory of TPU systems was weighing on free cash flow as it met demand. A portfolio manager at Aptus Capital Advisors said investors, amid concerns that AI could erode the search business, “need to see search accelerating, not slowing down.” The Nasdaq Composite fell 1.4% on Thursday, October 29, while the S&P 500 declined 0.3%, with the Associated Press noting that Alphabet’s drop weighed on the U.S. market. The market reaction followed a combination of the results shortfall and concerns about investment costs and returns from AI.

Alphabet forecast capital expenditures of between $195 billion and $205 billion for 2026, and the chief financial officer said spending would rise significantly in 2027, without specifying a figure for next year. The company is expected to provide more details on spending during its fourth-quarter earnings call. Management also said TPU system sales would rise in the current quarter and then expand substantially in 2027, while inventory of the systems continued to weigh on free cash flow. This puts expectations for cloud growth and chip sales alongside capital funding needs that have concerned investors. Updated spending details remain the next milestone the company has announced for shareholders.