Alphabet shares fell more than 10% after the search giant reported a decline in its third-quarter free cash flow, a worrying sign for the artificial intelligence business.
Here are the company’s results, compared to the estimates of analysts surveyed by LSEG:
- Earnings per share: $2.67 adjusted versus $3.02 expected
- Income: $127.58 billion versus $128.22 billion
Revenue was up 25% from last year, but the company suffered its first revenue and bottom line failure in nearly four years.
Net income fell to $26.17 billion, or $2.12 per share, from $34.98 billion, or $2.87 per share, a year ago.
Google’s parent company reported negative free cash flow of $9.07 billion, a much bigger decline than the $2.70 billion analysts expected.
As questions mount over increased spending on AI development, Alphabet’s capital expenditures totaled $51.36 billion in the third quarter, below the $55.09 billion analysts expected. Investors are looking for a substantial return on investment to justify hyperscalers’ big spending plans.
Alphabet maintained its full-year capital spending guidance after raising its forecast to between $195 billion and $205 billion in the second quarter from $190 billion. Annual investments are expected to exceed $200 billion before surpassing $300 billion in 2027.
“We continue to expect our investments to increase significantly in 2027 and will provide more details on our call in the fourth quarter,” Chief Financial Officer Anat Ashkenazi told analysts on an earnings conference call.
The company’s borrowings increased sharply during the quarter, with long-term debt reaching $125.1 billion, up from $21.6 billion a year earlier, an increase of about 479%.
Operating profit came in at $40.58 billion, missing FactSet’s forecast of $43.19 billion.
Alphabet reported a bumper $99.03 billion in revenue from equity holdings in the second quarter, fueled by stakes in EspaceX And Anthropic. However, the category weighed on third-quarter results, resulting in a loss of $8.66 billion.
The company continues to open its portfolio to fuel AI expansion, which has contributed to strong revenue growth in its cloud division, which houses its suite of AI offerings.
“We are seeing extraordinary demand and strong growth from AI labs, capital markets, financial services institutions and enterprises,” Google Cloud CEO Thomas Kurian said in his first public earnings call.
Cloud revenue more than doubled to $30.7 billion, beating the $28.7 billion analysts expected. The company continued to take market share from its larger competitors. Amazon Web Services and Microsoft Azure.
Cloud’s strong results have failed to erase Google’s largely negative impression.
“The cloud business is the only one that grew 103%,” Brent Thill, an analyst at Jefferies, told CNBC’s Closing Bell: Overtime. “The Street wanted 100%, so he didn’t beat by much, and he missed some of the high-end targets. Everything else missed.”
The company’s aggressive push toward AI models has shown signs of consumer adoption. Google said its Gemini app has reached 1 billion users, making it the fastest-growing product in its history, the company said.
CEO Sundar Pichai told analysts the company was already seeing strong demand for its recently launched Argon Gemini model. Its Carbon iteration announced Wednesday outperforms Argon “in almost every area,” he added.
Alphabet’s search revenue increased 12% to $63.35 billion. This amount falls far short of the estimate of $64.96 billion. Pichai said the company’s investments in AI have generated the highest query growth rate over the past five years.
Gn headline
