Investing.com – Alphabet (GOOG, GOOGL) reported negative free cash flow of $9.07 billion in the third quarter, its second consecutive quarter of burning cash, sending GOOGL shares down more than 10% in premarket trading Thursday and leading Neocloud shares to fall sharply.
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Nebius (NBIS), CoreWeave (CRWV) and are the most direct indicators of AI infrastructure spending sentiment, and all three saw sympathy ahead of Thursday’s open – NBIS by 6.5%, CRWV by 6.1% and IREN by 4.8%.
Alphabet’s third-quarter results were worse than expected. Revenue came in at $127.6 billion, compared to the consensus estimate of $128.2 billion, while EPS of $2.12 was well below forecasts of $3.02.
The deficit was concentrated on Google’s core advertising business: Search advertising revenues increased only 12% year-over-year, decelerating from 17% in the second quarter and 19% in the first quarter, three consecutive quarters of slowing growth. Google’s advertising revenue of $82.01 billion was about $1.4 billion below expectations.
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Management attributed the search deceleration in part to the growing use of AI mode, a direct acknowledgment that Google’s own AI product is cannibalizing its highest revenue stream.
The $9.07 billion cash outflow follows a $5.9 billion cash outflow in the second quarter, and Chief Financial Officer Anat Ashkenazi told analysts that capital spending in 2027 would increase significantly from the already high forecast range of $195 billion to $205 billion for 2026, without providing a specific figure.
“The margin setup looks challenging heading into 2027, with Cloud facing higher amortization and third-party bridge capacity costs, while search margins were lower than expected,” Lloyd Walmsley, an analyst at Mizuho, said in a note.
Google Cloud revenue more than doubled to $30.71 billion, beating the estimate of $29.10 billion, and the cloud backlog reached approximately $560 billion, with more than 55% expected to be converted into revenue within 24 months.
For Neocloud names, the timing is particularly painful. CoreWeave rose about 18% in the three trading days through Wednesday.
Original article
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