Alphabet earnings miss: $9 billion cash burn sends shares down 9%
Google's parent missed on profit and revenue for the first time in nearly four years and burned $9.07 billion of free cash flow, dragging Nasdaq-100 futures lower before Thursday's open.
The AI spending bill finally landed on Google's income statement. The Alphabet earnings miss on Wednesday was the company's first on both revenue and profit in nearly four years, and it came with a free cash flow figure of minus $9.07 billion that knocked the shares down about 9% in extended trading.
What happened
Revenue rose 25% to $127.58 billion in the third quarter, short of the $128.22 billion LSEG consensus, CNBC reported. Net income dropped to $26.17 billion, or $2.12 a share, from $34.98 billion, or $2.87, a year earlier. Part of the damage came from an $8.66 billion loss on equity holdings, which the Guardian tied to Alphabet's stake in SpaceX, whose shares have struggled since the June listing.
Search, still the biggest earner, grew 12% to $63.35 billion against a $64.96 billion estimate. Total advertising rose 11% to about $82 billion, and YouTube ads slowed to 9% growth. The bright spot was Google Cloud: revenue more than doubled, up 103% to $30.7 billion, and its operating income roughly tripled to $11.1 billion. Alphabet said in its release that sales of TPU systems were a meaningful contributor.
Capital spending reached $51.36 billion in the quarter, more than double the year-earlier level, though below the $55.09 billion analysts expected. Alphabet kept its 2026 capex range at $195 billion to $205 billion, and CFO Anat Ashkenazi said spending will "increase significantly in 2027." Long-term debt climbed to $125.1 billion from $21.6 billion a year earlier, and the Guardian said the company raised $28.7 billion from bonds and $12.4 billion from new shares during the quarter.
Why it matters
Spending has now outrun the cash the business generates for a second straight quarter. That follows Meta's turn to negative free cash flow last week and its $95 billion equity raise plan, so investors are no longer treating the hyperscalers' capex as a free option. Nasdaq-100 futures fell 1.4% early Thursday while Microsoft, which kept free cash flow positive, rose after hours, CNBC said.
The Alphabet earnings miss also cuts against a strong AI story. The Gemini app has reached 1 billion users, Pichai said, and outside demand for TPUs keeps growing, including the reported OpenAI Google TPUs plan. "The cloud business was the only business that beat," Jefferies analyst Brent Thill told CNBC.
What's next
Alphabet will give details of its 2027 capex plan on the fourth-quarter call. Before then, investors get Amazon's results after Thursday's close, which will show whether AWS spending is producing a similar squeeze. The numbers are in Alphabet's third-quarter earnings release.
The call
We say Alphabet will not be the world's third-largest company by market value on Dec. 31. Polymarket's "Will Alphabet be the third-largest company in the world by market cap on December 31?" market priced No at 70% at 08:19 MSK on Oct. 29. After the Alphabet earnings miss, with heavier capex and borrowing ahead, the stock has to win back ground against Microsoft, whose cloud print beat on the same night.
This article is for information only and is not investment advice. Calls are editorial forecasts, logged with market odds at the time of publication and kept on the record.