Alphabet Misses Q3 Market Estimates; Shares Plunge 10% After Hours

Alphabet, Google's parent company, reported quarterly results that fell short of market expectations despite sharp growth in its cloud business. Massive investments in AI infrastructure also weighed on cash flow. Its shares plunged more than 10% in after-hours trading.

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According to results Alphabet released on Oct. 28 local time, revenue for the third quarter of this year rose 25% year over year to $127.58 billion. That was below the Wall Street estimate of $128.22 billion compiled by market research firm London Stock Exchange Group (LSEG).

Earnings per share (EPS) also came in at $2.12, well below the market estimate of $3.02. The figure reflected valuation losses on Alphabet's stakes in SpaceX and Anthropic, among other factors. EPS excluding those items was also below market expectations, at $2.67.

By business segment, Google Cloud revenue surged 103% year over year to $30.71 billion. Growth was driven by rising demand from businesses for AI infrastructure and strong sales of its Tensor Processing Unit (TPU) systems, its proprietary AI chips. The cloud segment posted operating income of $11.12 billion.

Revenue from Google Services, which includes Google Search and YouTube, rose 11% from the same period last year to $96.3 billion. Revenue from Other Bets, which includes the self-driving taxi business Waymo, also increased, from $340 million to $370 million.

Alphabet CEO Sundar Pichai stressed that the company's broad-based approach to AI technology is driving growth across its businesses.

However, the deterioration in cash flow resulting from increased investment in AI infrastructure heightened investor concerns. Alphabet's capital expenditures totaled $51.36 billion in the third quarter. As a result, free cash flow (FCF)—cash generated from operating activities minus capital investments and other items—recorded a deficit of $9.065 billion. This marked the second consecutive quarter of negative FCF.

Alphabet shares rose 1.34% in regular trading that day. However, after the results were released, they fell more than 10% in after-hours trading.

This content was produced with the assistance of AI translation services.