Alphabet reported third-quarter revenue of $127.6 billion, narrowly missing analyst expectations as growth in its core search advertising business decelerated. Following the announcement, shares fell about 10% in after-hours trading.
The company's aggressive investment in artificial intelligence is heavily weighing on its financials. Capital expenditures surged to $51.4 billion, causing free cash flow to drop further into negative territory at $9.1 billion—a loss greater than analysts expected.
Performance was mixed across business units. While search advertising revenue growth slowed to 12% year-over-year—down from 17% in the second quarter and 19% in the first—the cloud division saw significant growth, rising 103% year-over-year. Additionally, revenue from subscriptions, platforms, and devices increased 11% to $14.3 billion, bolstered by YouTube Music and Premium, which topped 150 million subscribers.
Google is navigating a transition as it works to translate AI advancements into faster sales. The company has spent the year expanding its AI infrastructure, introducing its own tensor processing units to customer data centers, and launching updated Gemini AI models to improve performance in areas like software coding. While the company stated that projected spending for this year remains stable, CFO Anat Ashkenazi noted that capital expenditures are expected to increase significantly in 2027.