Earnings · $GOOGL
Alphabet Falls After Hours as Ad Revenue Miss and Negative Cash Flow Overshadow Cloud Surge
Image: Akela999 via Pixabay
Google Cloud revenue more than doubled, but heavy AI spending pushed free cash flow below zero and the company signaled bigger outlays in 2027.
By Emma Cruz ·
Shares of Alphabet dropped about 10% in extended trading on Wednesday after the Google parent reported third-quarter revenue and advertising sales that fell short of Wall Street forecasts, while the cost of its artificial intelligence buildout pushed free cash flow into negative territory for a second straight quarter [1].
Alphabet said total revenue rose 25% from a year earlier to $127.6 billion [2]. Analysts had expected $128.2 billion, according to LSEG data cited by Reuters [1]. Advertising revenue of $82 billion trailed the consensus estimate of $83.4 billion [1]. Within that, Google Search and other revenue grew 12% to $63.4 billion, and YouTube advertising reached $11.2 billion, up from $10.3 billion a year earlier [2].
The standout was Google Cloud. The unit's revenue jumped 103% to $30.7 billion, and its operating income climbed to $11.1 billion from $3.6 billion in the same quarter last year [2]. Reuters reported that the cloud backlog stood at $561 billion, with more than 55% expected to be recognized as revenue within 24 months [1].
Chief Executive Sundar Pichai said the company was now on "a half-trillion dollar revenue run rate" [2].
Profit told a more mixed story. Operating income rose 30% and the operating margin was 31.8%, but net income came to $26.5 billion and diluted earnings per share were $2.12, down from $2.87 a year earlier [2]. Net income available to common shareholders fell 25%, according to Reuters, which also reported adjusted earnings of $2.67 a share against an analyst target of $3.02 [1].
Cash flow drew the sharpest reaction. Alphabet spent $51.4 billion on property and equipment during the quarter and reported free cash flow of negative $9.1 billion [2]. Analysts had expected roughly break-even, according to LSEG [1]. The company had already burned $5.9 billion in the prior quarter, its first negative quarter in 22 years as a public company, Reuters said [1]. Trailing twelve-month free cash flow was $19.7 billion [2].
Alphabet kept its 2026 capital spending forecast at $195 billion to $205 billion and said it plans to significantly increase spending in 2027, without giving a figure [1].
Investors appeared to focus on whether AI is lifting the core search business as much as it is lifting cloud. Dave Wagner, a portfolio manager at Aptus Capital Advisors, told Reuters that "cloud is carrying the story" [1]. Bernstein analysts questioned in a note whether the company had rushed the rollout of its Gemini 4 models to offset softer financial metrics, Reuters reported [1].
Why it matters for markets: Alphabet is one of the largest weights in the S&P 500 and the Nasdaq, and its results are a test of whether the enormous sums technology companies are spending on data centers can be funded from operating cash. A sustained run of negative free cash flow at one of the most profitable companies in the world could sharpen investor scrutiny of AI spending across the sector, including at chipmakers and infrastructure suppliers that have rallied on that demand.
What to watch next: how the stock trades when the regular session opens on Thursday, any further detail from management on the size of the 2027 spending increase, and whether search and YouTube advertising growth reaccelerates in the fourth quarter as AI features roll out more widely.
Sources:
[1] Reuters via AOL, "Alphabet shares fall after revenue miss, cash burn worsens", October 28, 2026. https://www.aol.com/articles/alphabets-google-cloud-unit-beats-200614000.html
[2] Alphabet Inc., "Alphabet Announces Third Quarter 2026 Results", October 28, 2026. https://s206.q4cdn.com/479360582/files/doc_financials/2026/q3/2026q3-alphabet-earnings-release.pdf
This article was produced with AI assistance. It is for informational purposes only and is not financial advice. StockVolt and its authors may hold positions in securities mentioned.